The disclaimed property becomes part of the probate estate. Example 12 of Reg. 25.2518-2(c)(5) makes this point clear:
Example (12). On July 1, 1990, A opens a bank account that is held jointly with B, A’s spouse, and transfers $50,000 of A’s money to the account. A and B are United States citizens. A can regain the entire account without B’s consent, such that the transfer is not a completed gift under § 25.2511-1(h)(4). A dies on August 15, 1998, and B disclaims the entire amount in the bank account on October 15, 1998. Assuming that the remaining requirements of section 2518(b) are satisfied, B made a qualified disclaimer under section 2518(a) because the disclaimer was made within 9 months after A’s death at which time B had succeeded to full dominion and control over the account. Under state law, B is treated as predeceasing A with respect to the disclaimed interest. The disclaimed account balance passes through A’s probate estate and is no longer joint property includible in A’s gross estate under section 2040. The entire account is, instead, includible in A’s gross estate under section 2033. The result would be the same if A and B were not married.
Note that B is able to effectuate a qualified disclaimer over the entire joint account because (i) A provided all of the consideration and (ii) until A’s death A could, unilaterally, withdraw all of the funds in the joint account.
4.1.1 Because the account becomes part of the probate estate includable under IRC § 2033, it received a full step-up. IRC § 1014(b)(1).
4.1.2 The estate tax inclusion of joint property depends, of course, on whether the joint owners are married. Generally, IRC § 2040(a) provides the rule that for unmarried joint owners all of the value of the joint account is includable in the estate of the decedent except to the extent the surviving joint owner can establish that he or she furnished all or part of the consideration for the account. IRC § 2040(a). For married individuals, generally it is deemed to be 50% includable. IRC § 240(b). This, of course, tracks the treatment on IRS form 706, Schedule E. [One exception to this treatment flows from the Gallenstein case which is followed in Maryland.]
 The last sentence means only that the disclaimant property goes into the probate estate. Only a spouse can then receive the property after he or she has disclaimed the joint interest, not unmarried individuals. IRC § 2518.
 IRC § 2040(b) states that joint holdings that are not tenancy by the entirety are only treated this way if held by the spouses as the only joint tenants.
 Gallenstein v. United States, 975 F.2d 286 (6 Cir. 1992); Anderson v. United States, 96-2 USTC § 60.235 (D. Md. 1996). Gallenstein permits a full step-up of basis if the deceased spouse furnished all of the consideration for joint spousal interests credited prior to 1976.