In special circumstances a beneficiary may want to transfer inheritance rights to another.  Let us examine when, why and how such transfers can take place.

Consider an heir to a deceased person’s intestate estate (i.e., a person who died without a will).  Sometimes, an heir may want to transfer his/her inheritance rights to the following types of recipients:  An “heir search” firm; the decedent’s intended beneficiary; or to another family relative. Let’s discuss.

When a person without a will or trust dies and not all of the decedent’s lawful heirs step forward, an heir search firm may step in.  Using genealogical records, heir search firms find the missing heirs.   For example, take an unmarried decedent with no surviving descendants or siblings.  An heir search firm may find and notify the nieces and nephews or even cousins, as relevant.  Naturally, the heir search firm requests the missing heirs assign a percentage of their inheritance rights to the heir firm.  Assignments are legal if they satisfy certain standards.

Next, occasionally the heirs may wish to assign their rights to the decedent’s intended beneficiary. Take a decedent who, while alive, orally declared his intention to leave everything to his then girlfriend and companion of ten years.  Unfortunately for her, he never formalized his spoken intentions.  The heirs may — and I have seen this happen — choose to honor the decedent’s spoken intentions. To do so they may “assign” her their inheritance rights; in which case she steps into their shoes. 

Now consider a death beneficiary to a living trust.  Can the beneficiary transfer his or her beneficial interest in the trust estate?  It depends. 

Sometimes the trust gives a beneficiary a “power of appointment” to transfer the inheritance to alternative beneficiaries of choice; this is to allow the intended beneficiary to pick alternative beneficiaries should he or she not survive to receive his/her full inheritance.  To exercise a power of appointment, the power holder must execute a testamentary instrument and therein specifically refer to the power of appointment being exercised.

Powers of appointment are either limited or general.  Limited powers of appointment allow the power holder the right to transfer some or all of an inheritance to a narrow class of persons, typically the power holder’s siblings or children.  General powers of appointment, however, allow the power holder to transfer his inheritance rights to anyone, including his estate and his creditors.   

Without a power of appointment it is often impossible for the beneficiary to assign his/her inheritance because a trust will typically contain an “anti-alienation” clause.  This clause prevents a death beneficiary from assigning his or her inheritance rights – prevents the beneficiary’s creditors from compelling the trustee to satisfy the beneficiary’s own debts directly from the trust (prior to distribution to the beneficiary).

Nevertheless, even with an anti-alienation clause, a trust beneficiary may sometimes still “disclaim” – renounce — his or her beneficial interest within a 9 month period after the settlor of the trust dies. A properly executed disclaimer causes the disclaimed interest to pass as if the beneficiary had predeceased the settlor.  Consequently an alternative beneficiary inherits the disclaimed property.  However, unlike with an assignment or exercise of a power of appointment, the disclaiming beneficiary may not direct who inherits; he or she can only step aside.

Before transferring an inheritance by executing an assignment, power of appointment, or disclaimer, as the case may be, one should consult with a qualified attorney.  Not only must the legal procedure be done correctly, but persons making such transfers need to understand the implications to themselves. 

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”