3.1 “Transfer Creating the Interest”
Treasury issued final regulations under § 2518 in 1997 addressing the meaning of “transfer creating the interest” – the event triggering the nine-month period:
For purposes of the time limitation described in paragraph (c)(1)(i) of this section, the 9-month period for making a disclaimer generally is to be determined with reference to the transfer creating the interest in the disclaimant. With respect to inter vivos transfers, a transfer creating an interest occurs when there is a completed gift for Federal gift tax purposes regardless of whether a gift tax is imposed on the completed gift. Thus, gifts qualifying for the gift tax annual exclusion under section 2503(b) are regarded as transfers creating an interest for this purpose. With respect to transfers made by a decedent at death or transfers that become irrevocable at death, the transfer creating the interest occurs on the date of the decedent’s death, even if an estate tax is not imposed on the transfer. For example, a bequest of foreign-situs property by a nonresident alien decedent is regarded as a transfer creating an interest in property even if the transfer would not be subject to estate tax. If there is a transfer creating an interest in property during the transferor’s lifetime and such interest is later included in the transferor’s gross estate for estate tax purposes (or would have been included if such interest were subject to estate tax), the 9-month period for making the qualified disclaimer is determined with reference to the earlier transfer creating the interest. In the case of a general power of appointment, the holder of the power has a 9-month period after the transfer creating the power in which to disclaim. If a person to whom the exercise, release, or lapse of a general power desires to make a qualified disclaimer, the disclaimer must be made within a 9-month period after the exercise, release, or lapse regardless of whether the exercise, release, or lapse is subject to estate or gift tax. In the case of a nongeneral power of appointment, the holder of the power, permissible appointees, or takers in default of appointment must disclaim within a 9-month period after the original transfer that created or authorized the creation of the power. If the transfer is for the life of an income beneficiary with succeeding interests to other persons, both the life tenant and the other remaindermen, whether their interests are vested or contingent, must disclaim no later than 9 months after the original transfer creating an interest. In the case of a remainder interest in property which an executor elects to treat as qualified terminable interest property under section 2056(b)(7), the remainderman must disclaim within 9 months of the transfer creating the interest, rather than 9 months from the date such interest is subject to tax under section 2044 or 2519. A person who receives an interest in property as the result of a qualified disclaimer of the interest must disclaim the previously disclaimed interest no later than 9 months after the date of the transfer creating the interest in the preceding disclaimant. Thus, if A were to make a qualified disclaimer of a specific bequest and as a result of the qualified disclaimer the property passed as part of the residue, the beneficiary of the residue could make a qualified disclaimer no later than 9 months after the date of the testator’s death. See paragraph (d)(3) of this section for the time limitation rule with reference to recipients who are under 21 years of age.
Regs. § 25.2518-2(c)(3)(i). These rules, however, are made applicable for transfers creating the interest sought to be disclaimed occurring on or after December 31, 1997. This means that one must wade through prior law although the new final regulations are supposedly “reflective of prior law.” See Llewellyn, Levin & Lewis, “Disclaimers by a Surviving Spouse: The Trend of Increased Opportunities for Post Mortem Tax Planning Continues,” 35 Real Prop. Prob. & Trust J. 1, 10 (Spring 2000) (hereinafter “Llewellyn”).
3.1.1 The final regulations explicitly permit the disclaimer of the survivorship interest in the entirety interest within nine months of death. In states that permit entireties in personal property, this rule means that the survivorship interest in such property (generally 1/2) is also subject to a disclaimer. Thus, stock held by the entireties will be subject to the survivorship rule.
3.1.2 The final regulations limit the amount that can be disclaimed with respect to bank accounts, brokerage accounts and mutual funds to the portion attributable to the deceased spouse:
Special rule for joint bank, brokerage, and other investment accounts (e.g., accounts held at mutual funds) established between spouses or between persons other than husband and wife … [I]f a transferor may unilaterally regain the transferor’s own contributions to the account without the consent of the other cotenant, such that the transfer is not a completed gift … the surviving joint tenant may not disclaim any portion of the joint account attributable to consideration furnished by that surviving joint tenant.
Thus, if stock acquired from funds solely provided by the surviving spouse is held by the entireties, a one-half interest may be disclaimed. If a brokerage account, on the other hand, is acquired solely from funds attributable to the surviving spouse, such a fund cannot be disclaimed. This result is different, of course, if the fund is held by the entireties and not severable. This raises issues as to whether titling trumps the account agreement language of such account when such language permits unilateral severance. In Maryland, the entirety tenancy exists if the parties intended the joint account to be so held. Whether such an intention would trump the terms applicable to the account is uncertain. But see Llewellyn, supra, footnote 71, taking the position that the intent to hold a brokerage account by the entireties may trump the account terms providing for unilateral severance.