Taking the Guesswork out of Disclaimers

What To Know About Rejecting Charitable Bequests

Charities accept bequests gladly, gracefully, and even gleefully.  Rejecting bequests is a different story.

Saying “no” is foreign to the mission of fundraising and sometimes feels like a betrayal of the donor, the organization, or both.  To make matters worse, the unfamiliar mechanics of disclaiming bequests can induce a bit of angst, and occasionally panic, even in experienced bequest managers.

Sir Francis Bacon famously noted that knowledge is power.  This article is designed to provide bequest managers with essential knowledge about disclaimers, thereby empowering them to say “no” with prudence and confidence.

1. There Is Evidence That Disclaimers by Charities Are on the Rise.  Bequest Managers Should Certainly Consider This Option Where It Is Apparent That the Benefit of a Particular Gift May Be Outweighed by Its Burden.

A charity facing its first disclaimer needs to know that it is not alone.  Bequest rejection seems to be getting more common, as evidenced by a new California statute that clarifies and simplifies the redirection of certain real estate bequests rejected by charities.  (See California Probate Code § 5658, effective 1/1/2022.)

If nothing else, the need for legislation about disclaimed charitable bequests shows that refusals are not uncommon.  Most of the charitable disclaimers that we see involve real estate and we suspect that is the case nationwide.

Other situations triggering rejection include (1) unreasonable/unworkable restrictions on monetary gifts; (2) bequests of unsaleable interests in business ventures or of unmarketable personal property; and (3) gifts from sources whose values clearly contradict those of the charity.

2. Charities Cannot Be Forced to Accept a Bequest Gift.

It is a long-standing principle of the common law that no one can be forced to accept a gift, including a bequest gift.  See, e.g., Essen v. Gilmore, 259 Neb. 55 (2000) (characterizing a bequest as an “offer” that a beneficiary can either accept or reject).

There are a few situations where a beneficiary cannot reject a bequest gift, but these will almost never pertain to charities.  For example, if a person owes substantial back child support, he may not be permitted to reject a cash bequest that could satisfy the debt.  Charitable organizations are rarely involved in such predicaments.

3. Valid Disclaimers Are a Better Option Than Simple Refusals To Accept a Gift Because of the “Relation Back” Doctrine.

A disclaimer is an irrevocable and complete rejection by a charity of a testamentary gift.  When properly implemented, the disclaimer creates a legal fiction.  As to the disclaimed gift, the law will presume that the charity did not exist at the time of the testator’s death and thus never had any legal interest in the rejected gift.

By “relating back,” the disclaimer eliminates the argument that the charity had some kind of nebulous ownership interest in the asset during the interval between the death of the donor and the filing of the disclaimer.

If a charity were simply to refuse to accept a gift but not file a disclaimer, it could avoid taking title to the asset but might be in an ambiguous position as to whether it ever had some ownership interest.  Mere refusal does not trigger “relation back” protection.

In the recent case of Estate of Ferara, ___P.3d _____ (Wash.App. 2023), two beneficiaries refused to accept a bequest of real estate but did not disclaim.  The court did not “force” them to accept and treated the nonacceptance as a de facto disclaimer. Significantly, though, the court did not confirm or even mention any kind of “relation back” effect of the involuntary disclaimer.

4. “Relation Back” Provides Substantial Benefit to a Charity

The protection afforded by “relation back” can be especially important to a charity.  In our experience, a large proportion of rejected gifts involve real estate.  A charity’s rejection may be based on a broad organizational policy to decline these gifts or on the unique circumstances of a particular parcel of real estate.

Either way, the charity wants to erase any connection with the gift to avoid liability for environmental issues, mortgages, repairs, maintenance, on-site accidents, etc.  The protection afforded by the “relation back” of the disclaimer to the date of the testator’s death goes a long way toward accomplishing that objective.

5. The Concept of “Qualified Disclaimer Is Not Important for Management of Charitable Bequests.

Internet searches about disclaimers will yield much discussion of “qualification.”  A “qualified disclaimer” is a creature of federal tax law and involves issues of estate and gift tax.  See 26 § CFR 25.2518-1 et seq.

Although disclaimers by beneficiaries can have tax consequences for the estate, this is not a concern that charities need to address.  Bequest managers can scratch “qualified disclaimer” off the list of issues.

6. A Charity Might Take Action That Would Render It Ineligible to Disclaim a Particular Gift.

No beneficiary (charitable or not) can disclaim a gift after (1) accepting it; (2) receiving some benefit from it; or (3) exercising “dominion and control” over it.  A charity might signal acceptance of a bequest if, for example, it started taking income from a property prior to the close of estate administration.  Another faux pas would be a charity’s filing of a disclaimer that contained a recommendation of an alternate beneficiary.

“Acceptance by conduct” should not be confused with situations where a charity evaluates an asset before deciding on acceptance, like the common practice of performing “due diligence” on real estate.  The fact that the organization was spending money with respect to the property, or even having its agents on site, would not be a proxy for acceptance.

7. The Mechanics of Disclaiming Are Prescribed by Individual States’ Laws and These Laws Are Quite Diverse.

How does a beneficiary go about disclaiming?  The answer is found in the laws of individual states, and these are by no means consistent.

Some jurisdictions have held on to long-standing rules on disclaimers, while others have adopted provisions recommended in the Uniform Disclaimer of Property Interests Act (UDPIA), although frequently with state-specific modifications.

Most frequently, the disclaimer must include the name and signature of the disclaiming party, a clear statement of irrevocable disclaimer, and a careful description of exactly what bequest, or what portion of a bequest, is being rejected.

The state statute will also indicate to whom the disclaimer should be delivered, most typically the personal representative/executor or the trustee.  In some cases, it is prudent to deliver it to the court and/or (in the case of real estate) to the county office responsible for land records.

A charity that handles bequest management in-house will want to identify a good source for current versions of state probate statutes.

These are generally available for free, often on the state government’s website.  In addition, the probate laws of more than forty states are conveniently assembled at www.law.cornell.edu/wex/table_probate.

8. Some States Have Statutory Deadlines for Filing Disclaimers.

For states that have a disclaimer deadline, the time limit is almost always nine months from the date of the testator’s death.  The nine-month rule was adopted by many states after a 1977 change in the Internal Revenue Code set that time frame as the limit for a “qualified disclaimer.”

The well-intentioned effort to harmonize state and federal law turned out to be a failure, as the calculation of the period did not always match up under the two systems.  Most charities will attest that nine months is little time to evaluate, e.g., a parcel of real estate in a distant state, especially if the executor/trustee is unwilling to provide information.  To make matters worse, charities often receive a notice of probate well into the nine-month period.

9. Most of the “Nine Months” States Will Extend the Period if There Is a Good Reason.

Some of the states following the nine-month rule do not address the issue of late filing in the statute.  See, e.g., RCW 11.86.031 (Washington State).  Others expressly permit extensions for good cause.  See NY EST POW & TRST § 2-1.11.  The case law in these and similar states suggest that extensions are not automatic but granted (with full “relation back” protection) when the disclaiming party has a decent explanation.

Late disclaimers can sometimes be avoided if a charity has advance notice of a potentially troublesome bequest during the donor’s lifetime.  In these cases, it is prudent (if possible) to triage the asset before death so any needed disclaimers can be filed early in estate administration.

In all cases, it is good to keep meticulous records of a charity’s efforts to investigate questionable gifts and any roadblocks (recalcitrant executors, access to land records) encountered along the way.  This documentation will be critical if the charity needs to seek extension of the disclaimer deadline.

10. Watch for the Unusual Statutes.

At least one of the nine-month states takes a different approach and rejects “good cause” extensions.  In South Dakota, the pertinent statute (SD ST 29A-2-801(i)) reads as follows:

A disclaimer not made within the time limits prescribed by this section shall be construed as an assignment of the interest disclaimed to the persons who would be entitled to take had the disclaimer been timely made.

This is a potentially troublesome provision, mostly for individual beneficiaries but even for charities.  Its effect is to make the tardy disclaimant the owner of the asset in question, at least for a brief period. For individuals, this “ownership-followed-by-automatic-assignment” could have significant tax consequences.

Closer to home, if a charity fails to disclaim contaminated real estate in a timely manner, it could be identified as an “owner” in later environmental litigation.  While the organization may extricate itself based on “innocent landowner” or analogous defenses, it will not be without a financial and psychological cost.

11. The Evolving Trend Is To Allow Disclaimers Any Time Before Acceptance of the Asset or the End of Estate Administration.

UDPIA does not impose a time limit for disclaimers and several states have moved in that direction.  Obviously, any disclaimer must be filed by the close of estate administration.  Even in the no-limit states, it is prudent to move on these issues as quickly as possible to expedite the closing of the overall estate and the availability of final distribution of bequests that are not disclaimed.

In addition, there is always the possibility that a delayed disclaimer will invite a challenge based on the equitable theory of laches (unreasonable and unnecessary delay).  In no-limit states, however, we believe those challenges would fail.

12. One Should Not Hestitate to Over-File a Disclaimer.

Although state law will generally prescribe the necessary recipients of a disclaimer, there is no harm in “spreading the word.”  Executors/trustees (and their lawyers), the court, and (where relevant) the land records office are all interested parties and appropriate recipients.

In some cases, where there is only one “required” recipient, other parties may be “served” informally by email or other methods.  We would, however, recommend that copies for the court and any government office be provided by mail.

Note: We would especially recommend a filing with the land records office where the charity is disclaiming a gift made by a “TOD” (Transfer on Death) deed.  Charities do not need a lawyer to file a disclaimer.