REVENUE RULE 90-45

1990-1 C.B. 175, 1990-21 I.R.B. 4.

Internal Revenue Service
Revenue Ruling

DISCLAIMER BY SURVIVING SPOUSE OF ELECTIVE SHARE

Published: May 21, 1990

Part 1. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 2518. - Disclaimers, 26 CFR 25.2518-2: Requirements for a qualified disclaimer.
Disclaimer by surviving spouse of elective share. The disclaimer by a surviving spouse of a portion of the interest acquired as a result of the spouse's exercise of the statutory right of election is a qualified disclaimer if the interest is disclaimed within 9 months of the decedent's death.

ISSUE

If the surviving spouse elects to take a statutory share in the decedent's estate and subsequently disclaims a portion of the interest, is the surviving spouse's disclaimer a qualified disclaimer under section 2518(a) of the Internal Revenue Code?

FACTS

Situation 1. A, a resident of state X, died in 1987. A was survived by B, A's spouse, and C, the child of A and B. Under the terms of A's will, B, who was over the age of 21 at the time of A's death, received a pecuniary bequest and certain tangible personal property.

Within 9 months after A's death, B filed an election provided under the laws of state X to take against A's will. The election entitled B to receive that portion of A's estate that B would have received had A died intestate. Accordingly, B became entitled to receive a one-half fee interest in A's estate. Within 9 months after A's death, B disclaimed an undivided portion of the elected statutory share. The disclaimer was in writing and as a result of the disclaimer, the disclaimed property passed to C without any direction on the part of B.

Situation 2. The facts are the same as in Situation 1, except that B disclaimed the interest within 9 months of filing the election to take against A's will, but more than 9 months after A's death.

LAW AND ANALYSIS

Under section 2518(a) of the Code, if a person makes a qualified disclaimer of any interest in property, for purposes of the estate, gift, and generation- skipping transfer tax provisions, the disclaimed interest is treated as if it had never been transferred to the person making the qualified disclaimer. Instead, the interest disclaimed is treated as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer.

Section 2518(b) of the Code defines a qualified disclaimer as an irrevocable and unqualified refusal to accept an interest in property where:

(1) the refusal is in writing, (2) the written disclaimer is received by the transferor of the interest or the legal representative within 9 months after the later of - (A) the date on which the transfer creating the interest in the person is made, or (B) the date on which the person attains the age of 21, (3) the person has not accepted the interest or any of its benefits, and (4) as a result of the disclaimer, the interest passes without any direction on the part of the person making the disclaimer either - (A) to the spouse of the decedent, or (B) to a person other than the person making the disclaimer.

Section 2518(c)(l) provides that a disclaimer of an undivided portion of an interest that meets the requirements of section 2518(b) is treated as a qualified disclaimer of that portion of the interest.

Under section 25.2518-2(c)(1) of the Gift Tax Regulations, a disclaimer satisfies the requirements of section 2518(b)(2)(A) if the disclaimer is delivered within 9 months after the taxable transfer creating the interest. Section 25.2518-2(c)(3) provides that, with respect to transfers made by a decedent at death, the taxable transfer occurs on the date of the decedent's death. The regulation describes a situation where an individual disclaims a specific bequest of property under a will and, as a result of the disclaimer, the property interest passes to the estate residue. The regulation provides that the residuary beneficiary can make a qualified disclaimer of the interest that passes provided the residuary beneficiary disclaims the interest within 9 months after the testator's death, notwithstanding that the disclaimant had no entitlement to the interest until the execution of the first disclaimer.

Section 25.2518-2(d)(1) of the regulations provides that a qualified disclaimer cannot be made with respect to an interest in property if the disclaimant has expressly or impliedly accepted the interest or any of its benefits prior to making the disclaimer. Acceptance is manifested by an affirmative act which is consistent with ownership of the interest in property. Acts indicative of acceptance include using the property or the interest in property, accepting dividends, interest, or rents from the property, and directing others to act with respect to the property or interest in property. However, merely taking delivery of an instrument of title, without more, does not constitute acceptance. Further, a disclaimant is not considered to have accepted property merely because, under applicable local law, title to the property vests immediately in the disclaimant upon the death of the decedent.

In Situation 1, B's statutory share election merely effectuated or perfected B's right to receive a portion of the estate. After the election, B's position is precisely the same as it would have been if A had bequeathed the property to B, or if A had died intestate and the property passed to B by operation of law. Consequently, although B's exercise of the election constitutes an affirmative act that vests title to the property in B, it is not an acceptance of the property or its benefits. Accordingly, in Situation 1, since B's disclaimer otherwise qualifies under section 2518(b) of the Code, the disclaimer is a qualified disclaimer.

In Situation 2, B disclaimed the interest within 9 months of exercising the election, but more than 9 months after A's death. Thus, Situation 2 presents the question whether B's disclaimer is timely.  B did not become entitled to the statutory share until the right of election was exercised. As a result of the election, for transfer tax purposes, B's statutory share is deemed to pass directly from A to B, as of A's date of death. See, e.g., section 2056(c)(3) of the Code. Accordingly, for purposes of section 2518 of the Code, the taxable transfer creating B's interest occurred on the date of A's death, notwithstanding that B was not entitled to receive the interest until B exercised the right of election. See, section 25.2518- 2(c)(3). Accordingly, in Situation 2, B's disclaimer is not a qualified disclaimer under section 2518 because B did not disclaim the interest within 9 months after A's death.

HOLDINGS

(1) In Situation 1, because the surviving spouse elects to take a statutory share in the decedent's estate and subsequently disclaims a portion of the elective share within 9 months of the date of the decedent's death, the disclaimer is a qualified disclaimer under section 2518 of the Code.

(2) In Situation 2, because the surviving spouse elects to take a statutory share and subsequently disclaims a portion of the elective share within 9 months of the election, but more than 9 months after the date of the decedent's death, the disclaimer is not a qualified disclaimer under section 2518 of the Code.

DRAFTING INFORMATION

The principal author of this revenue ruling is George Masnik of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Mr. Masnik on (202) 566-4788 (not a toll-free call).

Rev. Rul. 90-45, 1990-1 C.B. 175, 1990-21 I.R.B. 4.