4.2 Not Subject to a Qualified Disclaimer

Under Reg. § 2518-2(c)(5), Example 14, the part not subject to a qualified disclaimer continues to retain its character as joint property under IRC § 2040(b):

Example (14).   The facts are the same as Example (12), except that B disclaims 40 percent of the funds in the account.   Since, under state law, B is treated as predeceasing A with respect to the disclaimed interest, the 40 percent portion of the account balance that was disclaimed passes through A’s probate estate, and is no longer characterized as joint property.   This 40 percent portion of the account balance is, therefore, includible in A’s gross estate under section 2033.   The remaining 60 percent of the account balance that was not disclaimed retains its character as joint property and, therefore, is includible in A’s gross estate as provided in section 2040(b).   Therefore, 30 percent (1/2 x 60 percent) of the account balance is includible in A’s gross estate under section 2040(b), and a total of 70 percent of the aggregate account balance is includible in A’s gross estate.   If A and B were not married, then the 40 percent portion of the account subject to the disclaimer would be includible in A’s gross estate as provided in section 2033 and the 60 percent portion of the account not subject to the disclaimer would be includible in A’s gross estate as provided in section 2040(a), because A furnished all of the funds with respect to the account.

Note that a disclaimer can increase the basis of jointly held married property.   Under example 14, the basis increases from a 50% step-up to a 70% step-up:

4.2.1       The 40% disclaimed is wholly stepped up due to inclusion under IRC § 2033.

4.2.2       The 60% not disclaimed continues to be joint property under IRC § 2040(b) and this is includable to the extent of ½ of the 60% or an additional 30%.