Disclaimer to Charity
It is possible for an IRA beneficiary designation or a will to include a contingent transfer of IRD or other assets to charity. If the primary beneficiary determines that he or she would desire not to receive the property, then it is possible for the primary beneficiary to "disclaim" and allow the property to pass to the contingent charitable beneficiary. In a taxable estate, this disclaimer enables the estate to benefit from a charitable estate tax deduction.
There are four requirements for a qualified disclaimer. The disclaimer must be in writing, it must be received by the executor within nine months after the date of the decedent's death, the disclaimant must not have accepted any benefits or interest in the property, and the interest must pass to a person other than the disclaimant. Sec. 2518(b). In the typical transfer to charity, the disclaiming party accepts no benefits from the property and the written disclaimer delivered to the executor allows the transfer of the disclaimed assets to the qualified exempt charity. It is also permissible to disclaim an undivided portion to charity and receive an estate tax charitable deduction. Sec. 2518(c)(1).
The contingent charitable disclaimer is very beneficial for providing estate flexibility. It allows the children or other heirs the choice of receiving the property or transferring it to charity. Based upon the needs of the children, the size of the estate, the estate tax laws applicable on date of death and other factors, the beneficiaries have the opportunity to make the best decision under the date-of-death circumstances.
Spousal Exception
There is an exception for the surviving spouse under the "pass to another person" rule for disclaimers. A spouse may disclaim and still benefit from an interest in the disclaimed property. Sec. 2518(b)(4)(A). For example, a testator could create a plan with the assets transferred to the surviving spouse and a contingent transfer to a charitable remainder trust for the surviving spouse. If the surviving spouse determined that the charitable trust would be useful for future income tax planning, he or she could disclaim part or all of the interest into the charitable remainder trust and still receive unitrust payouts for his or her lifetime. There would be no penalty in doing so, since the unitrust would still qualify for the marital deduction. Sec. 2056(b)(8).
