In preparing an estate plan, you need to consider not just the intended beneficiaries of your will or trust, but alternates in the event your first choices either die before you or reject their inheritance. Yes, there are many situations where a beneficiary might disclaim a gift made under a will or trust. Often this has to do with the tax implications of receiving an inheritance. But whatever the reason, it’s important to understand what happens if you leave part of your estate to a person who then turns around and says, “No thanks!”
Wait v. Wait
The California Court of Appeals recently considered a case dealing with this subject. The underlying dispute involved two brothers with different interpretations of their late mother’s trust. Please note, the case is discussed here for informational purposes only and should not be read as a complete statement regarding California law.
Beverly June Wait made a living trust in 2007. Wait was unmarried with two adult children, Stephen and Rexford Wait. The trust named Stephen Wait as successor trustee upon Beverly Wait’s death, and directed her estate be divided 65% to Stephen and 35% to Rexford.
Beverly Wait died in June 2010. In October, Rexford Wait informed his brother, now trustee, that he wished to file an irrevocable disclaimer of his interest in their mother’s trust. Rexford Wait intended his 35% share to go to his two daughters, Geena Wait and Kierstin Ross, instead.
The next year, after Rexford Wait signed his disclaimer, Stephen Wait asked a probate court in Alameda County for instructions on how to distribute the 35% left to Rexford Wait in the trust. Rexford Wait assumed his daughters would receive the full 35%. Stephen Wait disagreed. He maintained that his nieces were only entitled to 17.5%. Both the Superior Court and the Court of Appeals agreed.
Death In a Purely Legal Sense
Under California law, if a trust makes no specific provision for handling a disclaimer, then the disclaimed interest must be distributed as if the person making the disclaimer predeceased the settlor. In plain English, once Rexford Wait signed the disclaimer, he’s considered dead for purposes of distributing his mother’s trust.
In this case, Beverly Wait’s trust said that if one of her sons died before her, his share would be divided equally between the deceased son’s children and the other, living son. Thus, the 35% share Rexford Wait disclaimed must be divided into two 17.5% shares, one for Stephen Wait and one to be split equally between Geena Wait and Kierstin Ross. This was not what Rexford Wait intended to happen, but that was irrelevant, as he executed a valid-and irrevocable-disclaimer.
Had Beverly Wait wanted to, she could have written her trust to preserve the full 35% share in the event of her son’s disclaimer and avoid this unnecessary litigation. This is why it’s important to work with a California estate planning attorney who can advise you, and your family members, of the potential issues that might arise in administering a trust or estate. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.