Can a Beneficiary Refuse an Inheritance in Ontario?

Sometimes a gift in a will is not welcome. You may want to step aside so a sibling or a child can benefit, or you may be worried about what comes with the gift. Refusing an inheritance is often called a disclaimer.

How you refuse matters, because the tax result can differ depending on whether the property goes to no one in particular or to a person you choose. This article explains the general tax rule and the points to check before you sign anything.

What a disclaimer means

A disclaimer is a decision not to accept a gift you were left. In plain terms, you are saying you do not want it. What happens to the gift afterwards depends on your situation and on the wording of the will, so it is worth reading the will carefully and confirming with a lawyer.

For tax purposes, a valid disclaimer made in favour of no one means you are treated as never having acquired the interest. That is the main reason people use one: the property is treated as never having been yours.

It also helps to know how inheritances are usually taxed. The CRA lists most gifts and inheritances among the amounts that are not reported or taxed. Any capital gain or loss from the deceased person being treated as having sold their property just before death is reported on the deceased's final return, not by the beneficiary. Whether any of this changes your decision depends on your own facts, so it is worth confirming with an accountant.

Disclaiming versus directing the gift to someone

Many people want to refuse so that a particular person receives the property instead. The tax rules treat that differently. Directing the property to a particular person is treated as an assignment, not a disclaimer.

If your goal is to help a particular relative, speak with a lawyer or accountant before acting. Whether the result is acceptable depends on the facts.

Points to think about before refusing

• Where will the gift go once you decline? Check the will and whether another beneficiary or the residue takes your share.
• Have you already accepted or used anything from the gift? How that affects your options depends on your situation, so it is worth confirming with a lawyer.
• Is your goal tax, debt, or helping someone? Each goal may call for a different approach.
• Do you receive ODSP or other income support? Refusing may itself be treated as a gift or income for ODSP, so confirm this first.
• Are there time limits? Do not assume there is no deadline; ask before you delay.

If you receive ODSP

Some people think about refusing because an inheritance could affect their benefits. An ODSP recipient must report any income or other money they or anyone in their family receives, including a windfall such as an inheritance. You must also report an inheritance you expect to receive.

Inherited money is generally treated as income in the month it is received, and any amount still held the following month is treated as an asset. You and each family member can receive up to $10,000 in total in a 12-month period from gifts, inheritances, trust and life insurance payments and lottery winnings without affecting income support, and amounts above $10,000 count as income in the month received unless they are used for an approved disability-related item or service. Up to $100,000 of a trust may be exempt as an asset if the trust was funded by an inheritance or life insurance, an inherited trust set up in a will is not considered income, and inherited money placed in a trust within six months may also qualify for the exemption.

Inherited property or possessions are treated as assets, not income, and some are exempt, such as a home you live in or a car used as your primary vehicle. The limit on non-exempt assets is $40,000 for a single person and $50,000 for a couple. These amounts change from time to time, so check the current figures.

Asset changes and new assets can be reported online through MyBenefits, by phone or by mail, and the report should include the nine-digit member ID shown on your monthly statement. Failing to report creates an overpayment that must be repaid, even after you leave ODSP, and while you are still on ODSP deductions are taken from your monthly income support until it is repaid. Because refusing may itself count as a gift or income for ODSP purposes, get advice before you decide.

What to do next

• Get a copy of the will and note exactly what you were left.
• Do not accept or use the property until you have decided.
• Decide whether you want it to go to no one in particular or to a specific person.
• If you receive ODSP, speak with your caseworker and a lawyer before acting.
• Ask a lawyer or accountant to confirm the tax result of your plan in writing.

Frequently asked questions