Question

Stacey inherits unimproved land (fair market value of $6 million) from her father on June 1, 2019. She disclaims her interest in the property as follows: one-third on December 1, 2019; one-third on January 3, 2020; and the remaining one-third on May 31, 2020. In all cases, the disclaimers pass the interest to her son (the next heir under state law). The Federal gift tax applies to Stacey for:a. All of the disclaimers.b. The disclaimer made in 2017.c. The May 31, 2018 disclaimer.d. All of the disclaimers made in 2018.e. None of the disclaimers.

Answer 1

Answer:c. The May 31, 2020 disclaimer.

Correct Options:

a. All of the disclaimers.

b. The disclaimer made in 2019.

c. The May 31, 2020 disclaimer.

d. All of the disclaimers made in 2020.

e. None of the disclaimers.

Explanation:

A qualified disclaimer is a permanent refusal to receive a gifted property. This is useful when the tax to be paid on the property is sizable, as is the case in this $6 million parcel of land. The tax on the property will then be passed on to the contingent beneficiary, in this case, Stacey's son.

However, for a disclaimer to be valid, it has to be made and received within 9 months of transferring the property.  So the federal tax on December 1, 2019 and January 3, 2020 does not apply to Stacey but she has to pay the tax for the remaining one-third that she disclaimed on May 31, 2020 as this is outside the 9-month limit.