Disclaiming Property

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Disclaiming Property in Texas

Just because someone inherits property does not mean they can be forced to accept the property if they do not want it.  This is where the disclaimer comes in.

What Can Be Disclaimed

The term “disclaim” means to refuse to accept an interest in or power over property, including an interest or power the person is entitled to:

1. By inheritance;
2. Under a will;
3. By an agreement between spouses for community property with a right of survivorship;
4. By a joint tenancy with a right of survivorship;
5. By a survivorship agreement, account, or interest in which the interest of the decedent passes to a surviving beneficiary;
6. By an insurance, annuity, endowment, employment, deferred compensation, or other contract or arrangement;
7. Under a pension, profit sharing, thrift, stock bonus, life insurance, survivor income, incentive, or other plan or program providing retirement, welfare, or fringe benefits with respect to an employee or a self-employed individual; or
8. By an instrument creating a trust.

The disclaimer can also be partial, such as expressed as a fraction, percentage, monetary amount, term of years, limitation of a power, or any other interest or estate in the property.

When is the Disclaimer Effective?

Texas law goes on to say that a disclaimer is only effective if it:

1. Is in writing,
2. Declares the disclaimer,
3. Describes the interest or power disclaimed,
4. Is signed by the person making the disclaimer, and
5. Is (a) delivered by personal delivery, first-class mail, facsimile, e-mail, or any other method likely to result in the disclaimer’s receipt or (b) filed as required.

The disclaimer becomes irrevocable on the later of the date the disclaimer:

1. Is delivered by personal delivery, first-class mail, facsimile, e-mail, or any other method likely to result in the disclaimer’s receipt or filed or
2. Takes effect.

Texas law provides a number of rules as to when the disclaimer takes effect.  For an interest in property passes because of the death of a decedent, a disclaimer of the interest takes effect as of the time of the decedent’s death and relates back for all purposes to the time of the decedent’s death.  For most other property or powers disclaimed, the disclaimer takes effect as of the time the instrument creating the interest became irrevocable or, in the case of an irrevocable transfer made without an instrument, at the time of the irrevocable transfer.  

Validity of a Disclaimer

There are instances where it is necessary to prove the validity of a disclaimer.  To do so, it may be necessary to file suit to obtain a declaratory judgment saying so.  A declaratory judgment suit is a court proceeding whereby a party asks the court to rule on the legal effect of something, in this case the disclaimer.  This may be done in the heirship proceeding when the estate is being probated without a will.

It should also be noted that a disclaimer may not be effective to avoid unpaid Federal taxes.  The U.S. Supreme Court has ruled that the Arkansas disclaimer law could not be used to avoid unpaid Federal income taxes as the disclaimer applied retroactively back to the date of death.  See Drye v. United States, 528 U.S. 29 (1999).  It is not clear whether this legal authority would apply if the disclaimer had been made before the decedent’s death.

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