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For most people, turning down a million dollar inheritance seems crazy – but if you are already wealthy, turning down certain inheritances makes sense. When done correctly, turning down an inherited IRA can avoid increased tax liabilities. You’ll need expert guidance to handle this properly.

Large IRAs present certain challenges to heirs. Currently, the beneficiary’s IRA can be stretched out over their lifetime, although those rules may change in the future. But if you are already wealthy, inheriting a million-dollar IRA may become an expensive event. Turning it down, or “disclaiming” the IRA is an alternative that should be considered.

If you are already in a high income tax bracket, when you inherit an IRA you will have to take a required minimum disbursement every year and pay income tax on it at your tax rate.

On the other hand, what if another family member, such as a child, could inherit the IRA instead and pay a lower tax rate? In that case it would make financial sense for you to disclaim the IRA.

This consideration was explained by Kiplinger’s Retirement Report in a recent article titled “Surprising Reasons You Might Want to Give Up a Multi-Million-Dollar Inheritance.”

The article mentions a few other reasons you might consider disclaiming an IRA, such as for estate tax purposes or out of a sense of charity.

The key is to disclaim an inheritance correctly, if that is the decision you make.

For example, you will need to do so in writing within a small window of time. Also, you cannot take any benefit from the IRA, or any other inheritance you might want to disclaim, before you disclaim it.

As the article also mentions, you should talk to an estate planning attorney about disclaiming an inheritance. He or she can help ensure that you are doing the right thing in disclaiming and, if yes, that you are doing so properly.

Reference: Kiplinger’s Retirement Report (August, 2015) “Surprising Reasons You Might Want to Give Up a Multi-Million-Dollar Inheritance.

For more information on asset preservation and estate planning, please visit my estate planning website.

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.