Probate & Trust Law Section Conference Manual ... - Minnesota CLE

estate is presumed upon the recording of the disclaimer in the office of the county recorder or
registrar of titles of the county or counties where the real estate is located.Id.
The Act provides a disclaimer may be barred for a number of reasons. A disclaimer is ineffective
if the disclaimant waives the right to disclaim in writing. Minn. Stat. §524.2-1106. A disclaimer
is also barred if any of the following occur before the disclaimer becomes effective: (1) the
disclaimant accepts the portion of the interest sought to be disclaimed; (2)the disclaimant
voluntarily assigns, conveys, encumbers, pledges, or transfers the portion of the interest sought
to be disclaimed or contracts to do so; (3) the portion of the interest sought to be disclaimed is
sold pursuant to a judicial sale; or (4) the disclaimant is insolvent. Id.
Under the Act a disclaimer may be made at any time unless it is barred under section 524.2-
1106. This can be a trap for the unwary because, as will be discussed below, in order to be a
“qualified disclaimer” under the Internal Revenue Code a disclaimer must generally be made
within nine months of the date of the transfer creating the interest.
A disclaimer may be of a portion of the interest that would otherwise pass to the disclaimant.
Minn. Stat. §524.2-1107 provides a disclaimer may be expressed as a fraction, a percentage, a
monetary amount, or specific property. As will be discussed, this enables a disclaimant to use a
formula to fund a credit shelter trust with hard-to-value assets.
III. “Qualified Disclaimers” Under the Internal Revenue Code
Section 2518 of the Internal Revenue Code (“the Code”) created the concept of the “qualified
disclaimer” which is defined as an irrevocable and unqualified refusal to accept an interest, or an
undivided portion of an interest, in property. If a person makes a qualified disclaimer as
described in section 2518,for purposes of the Federal estate, gift, and generation-skipping
transfer tax laws, the disclaimed interest in property is treated as if it had never been transferred
to the person making the qualified disclaimer. Instead, the property is considered to have passed
directly from the transferor of the property to the person entitled to receive the property as a
result of the disclaimer. Treas. Reg. §25.2518-1(b).Accordingly, a person making a qualified
disclaimer is not treated as making a gift. Similarly, the value of a decedent's gross estate for
purposes of the Federal estate tax does not include the value of property with respect to which
the decedentmade a qualified disclaimer. Id.If the disclaimer is not a qualified disclaimer, for the
purposes of the Federal estate, gift, and generation-skipping transfer tax provisions, the
disclaimer is disregarded and the disclaimant is treated as having received the
interest.Id.Essentially, §2518 imposes four tests for a qualified disclaimer: (a) a writing test; (b) a
nine month test; (c) an acceptance test; and (d) a passage test.
A. The Writing Test
The first test is pretty simple – Code § 2518(b)(1) simply requires that the refusal to accept an
interest in property be in writing, that the writing identify the interest in property disclaimed and
that the writing be signed either by the disclaimant or by the disclaimant's legal
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