Gillette v. Wurst, 594 Pa. 544, 937 A.2d 430 (2007)
The Disclaimer is a key Estate Planning tool that should be used by each and every Estate Planning Attorney and Probate Lawyer. Clients must be informed that even though they may be named as a beneficiary of an estate, the beneficiary of an insurance policy or a joint owner of real estate there may be strategic Estate Planning or Asset Protection reasons to refuse to accept the asset. To “disclaim” an inheritance means that the beneficiary has decided not to take the asset. After being disclaimed, an asset passes as if the person who made the disclaimer was dead before the person who actually died.
Why disclaim an inheritance? There are many Estate Planning and Asset Protection reasons to disclaim. For example, a parent may not need an amount being passed to them through a Will or Trust and by disclaiming this amount instead passes to the person’s children free of gift tax. Another example is the person who already has a large estate subject to estate tax or inheritance tax so they disclaim assets that would otherwise be subject to these taxes at their subsequent deaths. Besides these Estate Planning reasons, other people fear law suits or divorce and would rather an inheritance pass to children than be entangled in these legal difficulties.These are legitimate Asset Protection reasons to disclaim, but what if you already owe someone money at the time the inheritance is available to you? What if you are being sued when someone dies naming you the beneficiary of an account or life insurance policy? Can you disclaim an asset so that it does not become applied towards an existing debt?
In Gillette v. Wurst the Pennsylvania Supreme Court reviewed a Superior Court decision with the following facts. John Gillete had been a schoolteacher who was killed while chaperoning a school dance. His surviving spouse was his heir, but had she died before him all his assets would have passed to his children. As his heir, his surviving spouse received an amount of money from Utica National Insurance Group, the worker’s compensation insurer for John’s school district. The amount claimed was payable due to the incident that led to John’s death. On behalf of John’s estate the widow then pursued a wrongful death action against the person who caused John’s death as well as that person’s parents. The attorneys and lawyers in the case arrived at a settlement. Without a disclaimer this settlement amount would have passed to the widow who would have been forced to repay Utica the amount they had earlier paid out to her. In an effort to avoid repaying Utica, John’s widow disclaimed any and all interest in the lawsuit settlement. By disclaiming, the settlement proceeds instead passed to the children. Utica National filed a petition to intervene claiming that the money it had paid out to the widow earlier should be repaid from the wrongful death settlement. The widow claimed that since she had disclaimed any share in the settlement there was nothing passing to her that could be used to repay the insurance company.
The Superior Court agreed with the widow and Utica appealed the decision to the Supreme Court, who reversed. The Court found that the widow’s right to disclaim and the insurance company’s right to be repaid co-existed but, where the lower court had found that the insurance company only had a right to recover against what the widow actually received, the Supreme Court found that they had a right to recover against what the widow had the right to receive. Utica was reimbursed.
Gillette stands for the idea that while you have a right to disclaim for Estate Planning reasons and for Asset Protection reasons you cannot disclaim to avoid existing creditors.
Does this mean that you are helpless if you have children with creditor issues or potential marital problems? The answer is no, there are Estate Planning techniques that can be used to shelter your money from your children’s creditors, but these steps must be taken by you, not your children. The key is to plan ahead so your child protected without having to use the disclaimer technique. There are many Estate Planning tools available that can be crafted to fit your given situation allowing you to keep your money safe from your child’s creditors and those pesky daughters and sons-in-law. If you would like to discuss these ideas, please contact our office for a free consultation.
