26 CFR Ch. I (4–1–10 Edition)

§ 25.2518–2 26 CFR Ch. I (4–1–10 Edition)

the decedent, has made a qualified dis- the will. The will provides that any disclaimer. If the disclaimer is not a claimed property is to pass to the residuary qualified disclaimer, for the purposes estate. H has no interest in the residuary es- of the Federal estate, gift, and genera- tate. Under the applicable laws of State Y, a tion-skipping transfer tax provisions, disclaimer must be made within 6 months of the death of the testator. Seven months the disclaimer is disregarded and the after F’s death, H disclaimed the real prop- disclaimant is treated as having re- erty H received under the will. The dis- ceived the interest. claimer statute of State Y has a provision (c) Effect of local law—(1) In general— stating that an untimely disclaimer will be (i) Interests created before 1982. A dis- treated as an assignment of the interest disclaimer of an interest created in a tax- claimed to those persons who would have able transfer before 1982 which other- taken had the disclaimer been valid. Pursu- wise meets the requirements of a quali- ant to this provision, the disclaimed prop- fied disclaimer under section 2518 and erty became part of the residuary estate. As- the corresponding regulations but suming the remaining requirements of section 2518 are met, H has made a qualified dis- which, by itself, is not effective under claimer for purposes of section 2518 (a). applicable local law to divest owner- Example (2). Assume the same facts as in ship of the disclaimed property from example (1) except that the law of State Y the disclaimant and vest it in another, does not treat an ineffective disclaimer as a is nevertheless treated as a qualified transfer to alternative takers. H assigns the disclaimer under section 2518 if, under disclaimed interest by deed to those who applicable local law, the disclaimed in- would have taken had the disclaimer been terest in property is transferred, as a valid. Under these circumstances, H has not result of attempting the disclaimer, to made a qualified disclaimer for purposes of another person without any direction section 2518 (a) because the disclaimant directed who would receive the property. on the part of the disclaimant. An in- Example (3). Assume the same facts as in terest in property will not be consid- example (1) except that the law of State Y ered to be transferred without any di- requires H to pay a transfer tax in order to rection on the part of the disclaimant effectuate the transfer under the ineffective if, under applicable local law, the disclaimer provision. H pays the transfer disclaimant has any discretion (wheth- tax. H has make a qualified disclaimer for er or not such discretion is exercised) purposes of section 2518 (a). to determine who will receive such in- (d) Cross-reference. For rules relating terest. Actions by the disclaimant to the effect of qualified disclaimers on which are required under local law the estate tax charitable and marital merely to divest ownership of the prop- deductions, see §§ 20.2055–2(c) and erty from the disclaimant and vest 20.2056(d)–1 respectively. For rules re- ownership in another person will not lating to the effect of a qualified dis- disqualify the disclaimer for purposes claimer of a general power of appoint- of section 2518(a). See § 25.2518–2(d)(1) ment, see § 20.2041–3(d). for rules relating to the immediate vesting of title in the disclaimant. [T.D. 8095, 51 FR 28370, Aug. 7, 1986, as amend- (ii) Interests created after 1981. [Re- ed by T.D. 8744, 62 FR 68185, Dec. 31, 1997] served] (2) Creditor’s claims. The fact that a § 25.2518–2 Requirements for a quali- disclaimer is voidable by the fied disclaimer. disclaimant’s creditors has no effect on (a) In general. For the purposes of the determination of whether such dis- section 2518(a), a disclaimer shall be a claimer constitutes a qualified dis- qualified disclaimer only if it satisfies claimer. However, a disclaimer that is the requirements of this section. In wholly void or that is voided by the general, to be a qualified disclaimer— disclaimant’s creditors cannot be a (1) The disclaimer must be irrev- qualified disclaimer. ocable and unqualified: (3) Examples. The provisions of para- (2) The disclaimer must be in writing; graphs (c) (1) and (2) of this section (3) The writing must be delivered to may be illustrated by the following ex- the person specified in paragraph (b) (2) amples: of this section within the time limita- Example (1). F dies testate in State Y on tions specified in paragraph (c)(1) of June 17, 1978. G and H are beneficiaries under this section;

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(4) The disclaimant must not have (3) Transfer. (i) For purposes of the accepted the interest disclaimed or any time limitation described in paragraph of its benefits; and (c)(1)(i) of this section, the 9-month pe- (5) The interest disclaimed must pass riod for making a disclaimer generally either to the spouse of the decedent or is to be determined with reference to to a person other than the disclaimant the transfer creating the interest in without any direction on the part of the disclaimant. With respect to inter the person making the disclaimer. vivos transfers, a transfer creating an (b) Writing—(1) Requirements. A dis- interest occurs when there is a com- claimer is a qualified disclaimer only if pleted gift for Federal gift tax purposes it is in writing. The writing must iden- regardless of whether a gift tax is im- tify the interest in property disclaimed posed on the completed gift. Thus, gifts and be signed either by the disclaimant qualifying for the gift tax annual ex- or by the disclaimant’s legal represent- clusion under section 2503(b) are re- ative. garded as transfers creating an interest (2) Delivery. The writing described in for this purpose. With respect to trans- paragraph (b)(1) of this section must be fers made by a decedent at death or delivered to the transferor of the inter- transfers that become irrevocable at est, the transferor’s legal representa- death, the transfer creating the inter- tive, the holder of the legal title to the est occurs on the date of the decedent’s death, even if an estate tax is not im- property to which the interest relates, posed on the transfer. For example, a or the person in possession of such bequest of foreign-situs property by a property. nonresident alien decedent is regarded (c) Time limit—(1) In general. A dis- as a transfer creating an interest in claimer is a qualified disclaimer only if property even if the transfer would not the writing described in paragraph be subject to estate tax. If there is a (b)(1) of this section is delivered to the transfer creating an interest in prop- persons described in paragraph (b)(2) of erty during the transferor’s lifetime this section no later than the date and such interest is later included in which is 9 months after the later of— the transferor’s gross estate for estate (i) The date on which the transfer tax purposes (or would have been in- creating the interest in the cluded if such interest were subject to disclaimant is made, or estate tax), the 9-month period for (ii) The day on which the disclaimant making the qualified disclaimer is de- attains age 21. termined with reference to the earlier (2) A timely mailing of a disclaimer transfer creating the interest. In the treated as a timely delivery. Although case of a general power of appointment, section 7502 and the regulations under the holder of the power has a 9-month that section apply only to documents period after the transfer creating the to be filed with the Service, a timely power in which to disclaim. If a person mailing of a disclaimer to the person to whom any interest in property described in paragraph (b)(2) of this passes by reason of the exercise, re- section is treated as a timely delivery lease, or lapse of a general power de- if the mailing requirements under sires to make a qualified disclaimer, paragraphs (c)(1), (c)(2) and (d) of the disclaimer must be made within a § 301.7502–1 are met. Further, if the last 9-month period after the exercise, re- day of the period specified in paragraph lease, or lapse regardless of whether (c)(1) of this section falls on Saturday, the exercise, release, or lapse is subject Sunday or a legal holiday (as defined in to estate or gift tax. In the case of a paragraph (b) of § 301.7503–1), then the nongeneral power of appointment, the delivery of the writing described in holder of the power, permissible ap- paragraph (b)(1) of this section shall be pointees, or takers in default of ap- considered timely if delivery is made pointment must disclaim within a 9- on the first succeeding day which is month period after the original trans- not Saturday, Sunday or a legal holi- fer that created or authorized the cre- day. See paragraph (d)(3) of this section ation of the power. If the transfer is for for rules applicable to the exception for the life of an income beneficiary with individuals under 21 years of age. succeeding interests to other persons,

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both the life tenant and the other gardless of whether such interest can remaindermen, whether their interests be unilaterally severed under local law are vested or contingent, must dis- and, except as provided in paragraph claim no later than 9 months after the (c)(4)(ii) of this section (with respect to original transfer creating an interest. certain tenancies created on or after In the case of a remainder interest in July 14, 1988), such interest is deemed property which an executor elects to to be a one-half interest in the prop- treat as qualified terminable interest erty. (See, however, section property under section 2056(b)(7), the 2518(b)(2)(B) for a special rule in the remainderman must disclaim within 9 case of disclaimers by persons under months of the transfer creating the in- age 21.) This is the case regardless of terest, rather than 9 months from the the portion of the property attrib- date such interest is subject to tax utable to consideration furnished by under section 2044 or 2519. A person who the disclaimant and regardless of the receives an interest in property as the portion of the property that is included result of a qualified disclaimer of the in the decedent’s gross estate under interest must disclaim the previously section 2040 and regardless of whether disclaimed interest no later than 9 the interest can be unilaterally severed months after the date of the transfer under local law. See paragraph (c)(5), creating the interest in the preceding Examples (7) and (8), of this section. disclaimant. Thus, if A were to make a (ii) Certain tenancies in real property qualified disclaimer of a specific be- between spouses created on or after July quest and as a result of the qualified 14, 1988. In the case of a joint tenancy disclaimer the property passed as part between spouses or a tenancy by the of the residue, the beneficiary of the entirety in real property created on or residue could make a qualified dis- after July 14, 1988, to which section claimer no later than 9 months after 2523(i)(3) applies (relating to the cre- the date of the testator’s death. See ation of a tenancy where the spouse of paragraph (d)(3) of this section for the the donor is not a United States cit- time limitation rule with reference to izen), the surviving spouse may dis- recipients who are under 21 years of claim any portion of the joint interest age. that is includible in the decedent’s (ii) Sentences 1 through 10 and 12 of gross estate under section 2040. See paragraph (c)(3)(i) of this section are paragraph (c)(5), Example (9), of this applicable for transfers creating the in- section. terest to be disclaimed made on or (iii) Special rule for joint bank, broker- after December 31, 1997. age, and other investment accounts (e.g., (4) Joint property—(i) Interests in joint accounts held at mutual funds) estab- tenancy with right of survivorship or ten- lished between spouses or between persons ancies by the entirety. Except as pro- other than husband and wife. In the case vided in paragraph (c)(4)(iii) of this sec- of a transfer to a joint bank, broker- tion (with respect to joint bank, bro- age, or other investment account (e.g., kerage, and other investment ac- an account held at a mutual fund), if a counts), in the case of an interest in a transferor may unilaterally regain the joint tenancy with right of survivor- transferor’s own contributions to the ship or a tenancy by the entirety, a account without the consent of the qualified disclaimer of the interest to other cotenant, such that the transfer which the disclaimant succeeds upon is not a completed gift under § 25.2511– creation of the tenancy must be made 1(h)(4), the transfer creating the sur- no later than 9 months after the cre- vivor’s interest in the decedent’s share ation of the tenancy regardless of of the account occurs on the death of whether such interest can be unilater- the deceased cotenant. Accordingly, if ally severed under local law. A quali- a surviving joint tenant desires to fied disclaimer of the survivorship in- make a qualified disclaimer with re- terest to which the survivor succeeds spect to funds contributed by a de- by operation of law upon the death of ceased cotenant, the disclaimer must the first joint tenant to die must be be made within 9 months of the coten- made no later than 9 months after the ant’s death. The surviving joint tenant death of the first joint tenant to die re- may not disclaim any portion of the

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joint account attributable to consider- reasonable time after a transfer. B disclaims ation furnished by that surviving joint the entire interest in real property on No- tenant. See paragraph (c)(5), Examples vember 10, 1979. Although B’s disclaimer may (12), (13), and (14), of this section, re- be effective under State Q law, it is not a qualified disclaimer under section 2518 be- garding the treatment of disclaimed in- cause the disclaimer was made later than 9 terests under sections 2518, 2033 and months after the taxable transfer to B. 2040. Example (6). A creates a revocable trust on (iv) Effective date. This paragraph June 1, 1980, in which B and C are given the (c)(4) is applicable for disclaimers made income interest for life. Upon the death of on or after December 31, 1997. the last income beneficiary, the remainder (5) Examples. The provisions of para- interest is to pass to D. The creation of the trust is not a completed gift for Federal gift graphs (c)(1) through (c)(4) of this sec- tax purposes, but each distribution of trust tion may be illustrated by the fol- income to B and C is a completed gift at the lowing examples. For purposes of the date of distribution. B and C must disclaim following examples, assume that all each income distribution no later than 9 beneficiaries are over 21 years of age. months after the date of the particular distribution. In order to disclaim an income dis- Example (1). On May 13, 1978, in a transfer tribution in the form of a check, the recipi- which constitutes a completed gift for Fed- ent must return the check to the trustee un- eral gift tax purposes, A creates a trust in cashed along with a written disclaimer. A which B is given a lifetime interest in the in- dies on September 1, 1982, causing the trust come from the trust. B is also given a non- to become irrevocable, and the trust corpus general testamentary power of appointment is includible in A’s gross estate for Federal over the corpus of the trust. The power of ap- estate tax purposes under section 2038. If B pointment may be exercised in favor of any or C wishes to make a qualified disclaimer of of the issue of A and B. If there are no sur- his income interest, he must do so no later viving issue at B’s death or if the power is than 9 months after September 1, 1982. If D not exercised, the corpus is to pass to E. On wishes to make a qualified disclaimer of his May 13, 1978, A and B have two surviving remainder interest, he must do so no later children, C and D. If A, B, C or D wishes to than 9 months after September 1, 1982. make a qualified disclaimer, the disclaimer Example (7). On February 1, 1990, A pur- must be made no later than 9 months after chased real property with A’s funds. Title to May 13, 1978. the property was conveyed to ‘‘A and B, as Example (2). Assume the same facts as in joint tenants with right of survivorship.’’ example (1) except that B is given a general Under applicable state law, the joint interest power of appointment over the corpus of the is unilaterally severable by either tenant. B trust. B exercises the general power of ap- dies on May 1, 1998, and is survived by A. On pointment in favor of C upon B’s death on January 1, 1999, A disclaims the one-half sur- June 17, 1989. C may make a qualified dis- vivorship interest in the property to which A claimer no later than 9 months after June 17, succeeds as a result of B’s death. Assuming 1989. If B had died without exercising the that the other requirements of section general power of appointment, E could have 2518(b) are satisfied, A has made a qualified made a qualified disclaimer no later than 9 disclaimer of the one-half survivorship inter- months after June 17, 1989. est (but not the interest retained by A upon Example (3). F creates a trust on April 1, the creation of the tenancy, which may not 1978, in which F’s child G is to receive the in- be disclaimed by A). The result is the same come from the trust for life. Upon G’s death, whether or not A and B are married and re- the corpus of the trust is to pass to G’s child gardless of the proportion of consideration H. If either G or H wishes to make a quali- furnished by A and B in purchasing the prop- fied disclaimer, it must be made no later erty. than 9 months after April 1, 1978. Example (8). Assume the same facts as in Example (4). A creates a trust on February Example (7) except that A and B are married 15, 1978, in which B is named the income ben- and title to the property was conveyed to ‘‘A eficiary for life. The trust further provides and B, as tenants by the entirety.’’ Under ap- that upon B’s death the proceeds of the trust plicable state law, the tenancy cannot be are to pass to C, if then living. If C unilaterally severed by either tenant. As- predeceases D, the proceeds shall pass to D suming that the other requirements of sec- or D’s estate. To have timely disclaimers for tion 2518(b) are satisfied, A has made a quali- purposes of section 2518, B, C, and D must fied disclaimer of the one-half survivorship disclaim their respective interests no later interest (but not the interest retained by A than 9 months after February 15, 1978. upon the creation of the tenancy, which may Example (5). A, a resident of State Q, dies not be disclaimed by A). The result is the on January 10, 1979, devising certain real same regardless of the proportion of consid- property to B. The disclaimer laws of State eration furnished by A and B in purchasing Q require that a disclaimer be made within a the property.

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Example (9). On March 1, 1989, H and W pur- on August 15, 1998, and B disclaims the entire chase a tract of vacant land which is con- amount in the bank account on October 15, veyed to them as tenants by the entirety. 1998. Assuming that the remaining require- The entire consideration is paid by H. W is ments of section 2518(b) are satisfied, B made not a United States citizen. H dies on June 1, a qualified disclaimer under section 2518(a) 1998. W can disclaim the entire joint interest because the disclaimer was made within 9 because this is the interest includible in H’s months after A’s death at which time B had gross estate under section 2040(a). Assuming succeeded to full dominion and control over that W’s disclaimer is received by the execu- the account. Under state law, B is treated as tor of H’s estate no later than 9 months after predeceasing A with respect to the dis- June 1, 1998, and the other requirements of claimed interest. The disclaimed account section 2518(b) are satisfied, W’s disclaimer balance passes through A’s probate estate of the property would be a qualified disclaimer. The result would be the same if the and is no longer joint property includible in property was held in joint tenancy with A’s gross estate under section 2040. The en- right of survivorship that was unilaterally tire account is, instead, includible in A’s severable under local law. gross estate under section 2033. The result Example (10). In 1986, spouses A and B pur- would be the same if A and B were not mar- chased a personal residence taking title as ried. tenants by the entirety. B dies on July 10, Example (13). The facts are the same as Ex- 1998. A wishes to disclaim the one-half undi- ample (12), except that B, rather than A, dies vided interest to which A would succeed by on August 15, 1998. A may not make a quali- right of survivorship. If A makes the dis- fied disclaimer with respect to any of the claimer, the property interest would pass funds in the bank account, because A fur- under B’s will to their child C. C, an adult, nished the funds for the entire account and A and A resided in the residence at B’s death did not relinquish dominion and control over and will continue to reside there in the fu- the funds. ture. A continues to own a one-half undi- Example (14). The facts are the same as Ex- vided interest in the property. Assuming ample (12), except that B disclaims 40 per- that the other requirements of section cent of the funds in the account. Since, 2518(b) are satisfied, A may make a qualified under state law, B is treated as predeceasing disclaimer with respect to the one-half undi- A with respect to the disclaimed interest, vided survivorship interest in the residence the 40 percent portion of the account balance if A delivers the written disclaimer to the that was disclaimed passes as part of A’s pro- personal representative of B’s estate by April bate estate, and is no longer characterized as 10, 1999, since A is not deemed to have accepted the interest or any of its benefits joint property. This 40 percent portion of the prior to that time and A’s occupancy of the account balance is, therefore, includible in residence after B’s death is consistent with A’s gross estate under section 2033. The re- A’s retained undivided ownership interest. maining 60 percent of the account balance The result would be the same if the property that was not disclaimed retains its character was held in joint tenancy with right of survi- as joint property and, therefore, is includible vorship that was unilaterally severable in A’s gross estate as provided in section under local law. 2040(b). Therefore, 30 percent (1⁄2×60 percent) Example (11). H and W, husband and wife, of the account balance is includible in A’s reside in state X, a community property gross estate under section 2040(b), and a total state. On April 1, 1978, H and W purchase real of 70 percent of the aggregate account bal- property with community funds. The prop- ance is includible in A’s gross estate. If A erty is not held by H and W as jointly owned and B were not married, then the 40 percent property with rights of survivorship. H and portion of the account subject to the dis- W hold the property until January 3, 1985, claimer would be includible in A’s gross es- when H dies. H devises his portion of the tate as provided in section 2033 and the 60 property to W. On March 15, 1985, W dis- percent portion of the account not subject to claims the portion of the property devised to the disclaimer would be includible in A’s her by H. Assuming all the other require- gross estate as provided in section 2040(a), ments of section 2518 (b) have been met, W because A furnished all of the funds with re- has made a qualified disclaimer of the inter- spect to the account. est devised to her by H. However, W could not disclaim the interest in the property (d) No acceptance of benefits—(1) Ac- that she acquired on April 1, 1978. ceptance. A qualified disclaimer cannot Example (12). On July 1, 1990, A opens a be made with respect to an interest in bank account that is held jointly with B, A’s property if the disclaimant has accept- spouse, and transfers $50,000 of A’s money to the account. A and B are United States citi- ed the interest or any of its benefits, zens. A can regain the entire account with- expressly or impliedly, prior to making out B’s consent, such that the transfer is not the disclaimer. Acceptance is mani- a completed gift under § 25.2511–1(h)(4). A dies fested by an affirmative act which is

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consistent with ownership of the inter- the redistribution of disclaimed prop- est in property. Acts indicative of ac- erty. ceptance include using the property or (3) Under 21 years of age. A bene- the interest in property; accepting ficiary who is under 21 years of age has dividends, interest, or rents from the until 9 months after his twenty-first property; and directing others to act birthday in which to make a qualified with respect to the property or interest disclaimer of his interest in property. in property. However, merely taking Any actions taken with regard to an delivery of an instrument of title, interest in property by a beneficiary or without more, does not constitute ac- a custodian prior to the beneficiary’s ceptance. Moreover, a disclaimant is twenty-first birthday will not be an ac- not considered to have accepted prop- ceptance by the beneficiary of the in- erty merely because under applicable terest. (4) Examples. The provisions of para- local law title to the property vests im- graphs (d) (1), (2) and (3) of this section mediately in the disclaimant upon the may be illustrated by the following ex- death of a decedent. The acceptance of amples: one interest in property will not, by itself, constitute an acceptance of any Example (1). On April 9, 1977, A established other separate interests created by the a trust for the benefit of B, then age 22. transferor and held by the disclaimant Under the terms of the trust, the current income of the trust is to be paid quarterly to in the same property. In the case of B. Additionally, one half the principal is to residential property, held in joint ten- be distributed to B when B attains the age of ancy by some or all of the residents, a 30 years. The balance of the principal is to be joint tenant will not be considered to distributed to B when B attains the age of 40 have accepted the joint interest merely years. Pursuant to the terms of the trust, B because the tenant resided on the prop- received a distribution of income on June 30, 1977. On August 1, 1977, B disclaimed B’s erty prior to disclaiming his interest in right to receive both the income from the the property. The exercise of a power of trust and the principal of the trust, B’s dis- appointment to any extent by the claimer of the income interest is not a quali- donee of the power is an acceptance of fied disclaimer for purposes of section 2518(a) its benefits. In addition, the acceptance because B accepted income prior to making of any consideration in return for mak- the disclaimer. B’s disclaimer of the prin- ing the disclaimer is an acceptance of cipal, however, does satisfy section 2518(b)(3). the benefits of the entire interest dis- See also § 25.2518–3 for rules relating to the disclaimer of less than an entire interest in claimed. property. (2) Fiduciaries. If a beneficiary who Example (2). B is the recipient of certain disclaims an interest in property is property devised to B under the will of A. also a fiduciary, actions taken by such The will stated that any disclaimed property person in the exercise of fiduciary pow- was to pass to C. B and C entered into nego- ers to preserve or maintain the dis- tiations in which it was decided that B would disclaim all interest in the real property claimed property shall not be treated that was devised to B. In exchange, C prom- as an acceptance of such property or ised to let B live in the family home for life. any of its benefits. Under this rule, for B’s disclaimer is not a qualified disclaimer example, an executor who is also a ben- for purposes of section 2518(a) because B ac- eficiary may direct the harvesting of a cepted consideration for making the dis- crop or the general maintenance of a claimer. home. A fiduciary, however, cannot re- Example (3). A received a gift of Blackacre on December 25, 1978. A never resided on tain a wholly discretionary power to Blackacre but when property taxes on direct the enjoyment of the disclaimed Blackacre became due on July 1, 1979, A paid interest. For example, a fiduciary’s dis- them out personal funds. On August 15, 1979, claimer of a beneficial interest does A disclaimed the gift of Blackacre. Assuming not meet the requirements of a quali- all the requirements of section 2518 (b) have fied disclaimer if the fiduciary exer- been met, A has made a qualified disclaimer cised or retains a discretionary power of Blackacre. Merely paying the property taxes does not constitute an acceptance of to allocate enjoyment of that interest Blackacre even though A’s personal funds among members of a designated class. were used to pay the taxes. See paragraph (e) of this section for Example (4). A died on February 15, 1978. rules relating to the effect of directing Pursuant to A’s will, B received a farm in

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State Z. B requested the executor to sell the both children. The corpus of the trust is to farm and to give the proceeds to B. The ex- be distributed equally between E and F when ecutor then sold the farm pursuant to B’s re- E becomes 35 years of age. Prior to attaining quest. B then disclaimed $50,000 of the pro- the age of 21 years on April 8, 1982, E receives ceeds from the sale of the farm. B’s dis- several distributions of income from the claimer is not a qualified disclaimer. By re- trust. E receives no distributions of income questing the executor to sell the farm B ac- between April 8, 1982 and August 15, 1982, cepted the farm even though the executor which is the date on which E disclaims all may not have been legally obligated to com- interest in the income from the trust. As a ply with B’s request. See also § 25.2518–3 for result of the disclaimer the income will be rules relating to the disclaimer of less than distributed to F. If the remaining require- an entire interest in property. ments of section 2518 are met, E’s disclaimer Example (5). Assume the same facts as in is a qualified disclaimer under section example (4) except that instead of requesting 2518(a). To have a qualified disclaimer of the the executor to sell the farm, B pledged the interest in corpus, E must disclaim the in- farm as security for a short-term loan which terest no later than 9 months after April 8, was paid off prior to distribution of the es- 1982, E’s 21st birthday. tate. B then disclaimed his interest in the Example (10). Assume the same facts as in farm. B’s disclaimer is not a qualified dis- example (9) except that E accepted a disclaimer. By pledging the farm as security for tribution of income on May 13, 1982. E’s dis- the loan, B accepted the farm. claimer is not a qualified disclaimer under Example (6). A delivered 1,000 shares of section 2518 because by accepting an income stock in Corporation X to B as a gift on Feb- distribution after attaining the age of 21, E ruary 1, 1980. A had the shares registered in accepted benefits from the income interest. B’s name on that date. On April 1, 1980, B dis- Example (11). F made a gift of 10 shares of claimed the interest in the 1,000 shares. Prior stock to G as custodian for H under the to making the disclaimer, B did not pledge State X Uniform Gifts to Minors Act. At the the shares, accept any dividends or otherwise time of the gift, H was 15 years old. At age commit any acts indicative of acceptance. 18, the local age of majority, the 10 shares Assuming the remaining requirements of were delivered to and registered in the name section 2518 are satisfied, B’s disclaimer is a of H. Between the receipt of the shares and qualified disclaimer. H’s 21st birthday, H received dividends from Example (7). On January 1, 1980, A created the shares. Within 9 months of attaining age an irrevocable trust in which B was given a 21, H disclaimed the 10 shares. Assuming H testamentary general power of appointment did not accept any dividends from the shares over the trust’s corpus. B executed a will on after attaining age 21, the disclaimer by H is June 1, 1980, in which B provided for the ex- a qualified disclaimer under section 2518. ercise of the power of appointment. On Sep- tember 1, 1980, B disclaimed the testa- (e) Passage without direction by the mentary power of appointment. Assuming disclaimant of beneficial enjoyment of dis- the remaining requirements of section 2518 claimed interest—(1) In general. A dis- (b) are satisfied, B’s disclaimer of the testa- claimer is not a qualified disclaimer mentary power of appointment is a qualified unless the disclaimed interest passes disclaimer. without any direction on the part of Example (8). H and W reside in X, a community property state. On January 1, 1981, H the disclaimant to a person other than and W purchase a residence with community the disclaimant (except as provided in funds. They continue to reside in the house paragraph (e)(2) of this section). If until H dies testate on February 1, 1990. Al- there is an express or implied agree- though H could devise his portion of the resi- ment that the disclaimed interest in dence to any person, H devised his portion of property is to be given or bequeathed the residence to W. On September 1, 1990, W to a person specified by the disclaims the portion of the residence de- disclaimant, the disclaimant shall be vised to her pursuant to H’s will but continues to live in the residence. Assuming the treated as directing the transfer of the remaining requirements of section 2518(b) property interest. The requirements of are satisfied, W’s disclaimer is a qualified a qualified disclaimer under section disclaimer under section 2518 (a). W’s contin- 2518 are not satisfied if— ued occupancy of the house prior to making (i) The disclaimant, either alone or the disclaimer will not by itself be treated as in conjunction with another, directs an acceptance of the benefits of the portion the redistribution or transfer of the of the residence devised to her by H. property or interest in property to an- Example (9). In 1979, D established a trust for the benefit of D’s minor children E and F. other person (or has the power to di- Under the terms of the trust, the trustee is rect the redistribution or transfer of given the power to make discretionary dis- the property or interest in property to tributions of current income and corpus to another person unless such power is

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limited by an ascertainable standard); claimed property which the or disclaimant has a right to receive. If (ii) The disclaimed property or inter- the portion of the disclaimed interest est in property passes to or for the ben- in property which the disclaimant has efit of the disclaimant as a result of a right to receive is not severable prop- the disclaimer (except as provided in erty or an undivided portion of the paragraph (e)(2) of this section). property, then the disclaimer is not a If a power of appointment is dis- qualified disclaimer with respect to claimed, the requirements of this para- any portion of the property. Thus, for graph (e)(1) are satisfied so long as example, if a disclaimant who is not a there is no direction on the part of the surviving spouse receives a specific be- disclaimant with respect to the trans- quest of a fee simple interest in prop- fer of the interest subject to the power erty and as a result of the disclaimer of or with respect to the transfer of the the entire interest, the property passes power to another person. A person may to a trust in which the disclaimant has make a qualified disclaimer of a bene- a remainder interest, then the dis- ficial interest in property even if after claimer will not be a qualified dis- such disclaimer the disclaimant has a claimer unless the remainder interest fiduciary power to distribute to des- in the property is also disclaimed. See ignated beneficiaries, but only if the § 25.2518–3 (a)(1)(ii) for the definition of power is subject to an ascertainable severable property. standard. See examples (11) and (12) of (4) Effect of precatory language. Preca- paragraph (e)(5) of this section. tory language in a disclaimer naming (2) Disclaimer by surviving spouse. In takers of disclaimed property will not the case of a disclaimer made by a de- be considered as directing the redis- cedent’s surviving spouse with respect tribution or transfer of the property or to property transferred by the dece- interest in property to such persons if dent, the disclaimer satisfies the re- the applicable State law gives the lan- quirements of this paragraph (e) if the guage no legal effect. interest passes as a result of the dis- (5) Examples. The provisions of this claimer without direction on the part paragraph (e) may be illustrated by the of the surviving spouse either to the following examples: surviving spouse or to another person. If the surviving spouse, however, re- Example (1). A, a resident of State X, died tains the right to direct the beneficial on July 30, 1978. Pursuant to A’s will, B, A’s enjoyment of the disclaimed property son and heir at law, received the family in a transfer that is not subject to Fed- home. In addition, B and C each received 50 eral estate and gift tax (whether as percent of A’s residuary estate. B disclaimed the home. A’s will made no provision for the trustee or otherwise), such spouse will distribution of property in the case of a be treated as directing the beneficial beneficiary’s disclaimer. Therefore, pursuant enjoyment of the disclaimed property, to the disclaimer laws of State X, the dis- unless such power is limited by an as- claimed property became part of the resid- certainable standard. See examples (4), uary estate. Because B’s 50 percent share of (5), and (6) in paragraph (e)(5) of this the residuary estate will be increased by 50 section. percent of the value of the family home, the (3) Partial failure of disclaimer. If a dis- disclaimed property will not pass solely to another person. Consequently, B’s disclaimer claimer made by a person other than of the family home is a qualified disclaimer the surviving spouse is not effective to only with respect to the 50 percent portion pass completely an interest in property that passes solely to C. Had B also dis- to a person other than the disclaimant claimed B’s 50 percent interest in the resid- because— uary estate, the disclaimer would have been (i) The disclaimant also has a right a qualified disclaimer under section 2518 of to receive such property as an heir at the entire interest in the home (assuming law, residuary beneficiary, or by any the remaining requirements of a qualified other means; and disclaimer were satisfied). Similarly, if under the laws of State X, the disclaimer has (ii) The disclaimant does not effec- the effect of divesting B of all interest in the tively disclaim these rights, the dis- home, both as devisee and as a beneficiary of claimer is not a qualified disclaimer the residuary estate, including any property with respect to the portion of the dis- resulting from its sale, the disclaimer would

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be a qualified disclaimer of B’s entire inter- must disclaim the power to appoint one- est in the home. third of the nonmarital trust’s corpus. The Example (2). D, a resident of State Y, died result is the same regardless of whether the testate on June 30, 1978. E, an heir at law of nongeneral power is testamentary or inter D, received specific bequests of certain sever- vivos. able personal property from D. E disclaimed Example (6). Assume the same facts as in the property transferred by D under the will. example (4) except that A has both an in- The will made no provision for the distribu- come interest in the nonmarital trust and a tion of property in the case of a beneficiary’s power to invade corpus if needed for A’s disclaimer. The disclaimer laws of State Y health or maintenance. In addition, an inde- provide that such property shall pass to the pendent trustee has power to distribute to A decedent’s heirs at law in the same manner any portion of the corpus which the trustee as if the disclaiming beneficiary had died im- determines to be desirable for A’s happiness. mediately before the testator’s death. Be- Assuming the other requirements of section cause State Y’s law treats E as predeceasing 2518 are satisfied. A may make a qualified D, the property disclaimed by E does not disclaimer of interests in the marital trust pass to E as an heir at law or otherwise. Con- without disclaiming any of A’s interests in sequently, if the remaining requirements of the nonmarital trust. section 2518(b) are satisfied, E’s disclaimer is Example (7). B died testate on June 1, 1980. a qualified disclaimer under section 2518(a). B’s will created both a marital trust and a Example (3). Assume the same facts as in example (2) except that State Y has no provi- nonmarital trust. The decedent’s surviving sion treating the disclaimant as prede- spouse, C, is an income beneficiary of the ceasing the testator. E’s disclaimer satisfies marital trust and has a testamentary gen- section 2518 (b)(4) only to the extent that E eral power of appointment over its assets. C does not have a right to receive the property is an income beneficiary of the nonmarital as an heir at law. Had E disclaimed both the trust, and additionally has the noncumu- share E received under D’s will and E’s intes- lative right to withdraw yearly the greater tate share, the requirement of section 2518 of $5,000 or 5 percent of the aggregate value (b)(4) would have been satisfied. of the principal. The provisions of the will Example (4). B died testate on February 13, specify that any portion of the marital trust 1980. B’s will established both a marital trust disclaimed is to be added to the nonmarital and a nonmarital trust. The decedent’s sur- trust. C disclaims 50 percent of the marital viving spouse, A, is an income beneficiary of trust corpus. Pursuant to the will, this the marital trust and has a testamentary amount is transferred to the nonmarital general power of appointment over its assets. trust. Assuming the remaining requirements A is also an income beneficiary of the non- of section 2518(b) are satisfied, C’s disclaimer marital trust, but has no power to appoint or is a qualified disclaimer. invade the corpus. The provisions of the will Example (8). A, a resident of State X, died specify that any portion of the marital trust on July 19, 1979. A was survived by a spouse disclaimed is to be added to the nonmarital B, and three children, C, D, and E. Pursuant trust. A disclaimed 30 percent of the marital to A’s will, B received one-half of A’s estate trust. (See § 25.2518–3 (b) for rules relating to and the children received equal shares of the the disclaimer of an undivided portion of an remaining one-half of the estate. B dis- interest in property.) Pursuant to the will, claimed the entire interest B had received. this portion of the marital trust property The will made no provisions for the distribu- was transferred to the nonmarital trust tion of property in the case of a beneficiary’s without any direction on the part of A. This disclaimer. The disclaimer laws of State X disclaimer by A satisfies section 2518 (b)(4). provide that under these circumstances dis- Example (5). Assume the same facts as in claimed property passes to the decedent’s example (4) except that A, the surviving heirs at law in the same manner as if the dis- spouse, has both an income interest in the claiming beneficiary had died immediately nonmarital trust and a testamentary non- before the testator’s death. As a result, C, D, general power to appoint among designated and E are A’s only remaining heirs at law, beneficiaries. This power is not limited by an and will divide the disclaimed property ascertainable standard. The requirements of equally among themselves. B’s disclaimer in- section 2518 (b)(4) are not satisfied unless A cludes language stating that ‘‘it is my inten- also disclaims the nongeneral power to ap- tion that C, D, and E will share equally in point the portion of the trust corpus that is the division of this property as a result of attributable to the property that passed to my disclaimer.’’ State X considers these to the nonmarital trust as a result of A’s dis- be precatory words and gives them no legal claimer. Assuming that the fair market effect. B’s disclaimer meets all other re- value of the disclaimed property on the date quirements imposed by State X on dis- of the disclaimer is $250,000 and that the fair claimers, and is considered an effective dis- market value of the nonmarital trust (in- claimer under which the property will vest cluding the disclaimed property) imme- solely in C, D, and E in equal shares without diately after the disclaimer is $750,000, A any further action required by B. Therefore,

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B is not treated as directing the redistribu- ments of this section are met, the dis- tion or transfer of the property. If the re- claimer of all or an undivided portion maining requirements of secton 2518 are met, of any separate interest in property B’s disclaimer is a qualified disclaimer. Example (9). C died testate on January 1, may be a qualified disclaimer even if 1979. According to C’s will, D was to receive the disclaimant has another interest in 1⁄3 of the residuary estate with any dis- the same property. In general, each in- claimed property going to E. D was also to terest in property that is separately receive a second 1⁄3 of the residuary estate created by the transferor is treated as with any disclaimed property going to F. Fi- a separate interest. For example, if an nally, D was to receive a final 1⁄3 of the resid- income interest in securities is be- uary estate with any disclaimed property queathed to A for life, then to B for going to G. D specifically states that he is disclaiming the interest in which the dis- life, with the remainder interest in claimed property is designated to pass to E. such securities bequeathed to A’s es- D has effectively directed that the dis- tate, and if the remaining require- claimed property will pass to E and therefore ments of section 2518(b) are met, A D’s disclaimer is not a qualified disclaimer could make a qualified disclaimer of ei- under section 2518(a). ther the income interest or the remain- Example (10). Assume the same facts as in der, or an undivided portion of either example (9) except that C’s will also states that D was to receive Blackacre and interest. A could not, however, make a Whiteacre. C’s will further provides that if D qualified disclaimer of the income in- disclaimed Blackacre then such property was terest for a certain number of years. to pass to E and that if D disclaimed Further, where local law merges inter- Whiteacre then Whiteacre was to pass to F. ests separately created by the trans- D specifically disclaims Blackacre with the feror, a qualified disclaimer will be al- intention that it pass to E. Assuming the lowed only if there is a disclaimer of other requirements of section 2518 are met, D has made a qualified disclaimer of the entire merged interest or an undi- Blackacre. Alternatively, D could disclaim vided portion of such merged interest. an undivided portion of both Blackacre and See example (12) in paragraph (d) of Whiteacre. Assuming the other requirements this section. See § 25.2518–3(b) for rules of section 2518 are met, this would also be a relating to the disclaimer of an undi- qualified disclaimer. vided portion. Where the merger of sep- Example (11). G creates an irrevocable trust arate interests would occur but for the on February 16, 1983, naming H, I and J as the income beneficiaries for life and F as the creation by the transferor of a nominal remainderman. F is also named the trustee interest (as defined in paragraph and as trustee has the discretionary power to (a)(1)(iv) of this section), a qualified invade the corpus and make discretionary disclaimer will be allowed only if there distributions to H, I or J during their lives. is a disclaimer of all the separate in- F disclaims the remainder interest on Au- terests, or an undivided portion of all gust 8, 1983, but retains his discretionary such interests, which would have power to invade the corpus. F has not made a qualified disclaimer because F retains the merged but for the nominal interest. power to direct enjoyment of the corpus and (ii) Severable property. A disclaimant the retained fiduciary power is not limited shall be treated as making a qualified by an ascertainable standard. disclaimer of a separate interest in Example (12). Assume the same facts as in property if the disclaimer relates to example (11) except that F may only invade severable property and the disclaimant the corpus to make distributions for the makes a disclaimer which would be a health, maintenance or support of H, I or J during their lives. If the other requirements qualified disclaimer if such property of section 2518(b) are met, F has made a were the only property in which the qualified disclaimer of the remainder inter- disclaimant had an interest. If applica- est because the retained fiduciary power is ble local law does not recognize a pur- limited by an ascertainable standard. ported disclaimer of severable prop- [T.D. 8095, 51 FR 28371, Aug. 7, 1986; 51 FR erty, the disclaimant must comply 31939, Sept. 8, 1986, as amended by T.D. 8744, with the requirements of paragraph 62 FR 68185, Dec. 31, 1997] (c)(1) of § 25.2518–1 in order to make a qualified disclaimer of the severable § 25.2518–3 Disclaimer of less than an property. Severable property is prop- entire interest. erty which can be divided into separate (a) Disclaimer of a partial interest—(1) parts each of which, after severance, In general—(i) Interest. If the require- maintains a complete and independent

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