In certain circumstances probate law can enable a person to protect inherited family assets from claims of his or her creditors.  This is at the juncture of probate law and debtor/creditor/bankruptcy law. Counsel may not be practicing in both areas of the law and may be unaware of the law regarding disclaimers.  Under the Uniform Disclaimer of Property Interests Act (the “Act”) of the Colorado Probate Code, a person may disclaim, in whole or in part, any interest in or power over property, even if the interest in that property is subject to a “spendthrift” provision or other limitation.

             To be effective, the disclaimer must be in writing or other record; declare the disclaimer; describe the interest being disclaimed; be signed by the person making the disclaimer; and be delivered or filed; and with regard to an interest in real property, be recorded in accordance with the Act.  A disclaimer becomes irrevocable when it is delivered or filed in accordance with the Act.

             If properly done, the interest in property disclaimed passes as if the disclaimant had died immediately before the time of distribution in the probate case.  The interest so disclaimed then passes in accordance with the disclaimant’s will or in accordance with the laws of intestacy as provided by statute.

            A disclaimer may be barred in certain cases: when the disclaimant has signed a written waiver of the right to disclaim; when the disclaimant accepts the interest sought to be disclaimed; when the disclaimant voluntarily transfers or encumbers the interest sought to be disclaimed; or when a judicial sale of the interest sought to be disclaimed occurs.  A disclaimer will also not be effective against a claim for the recovery of certain medical assistance benefits.

             A proper disclaimer cannot be set aside by creditors of the disclaimant under the Colorado fraudulent transfers statutes or under the fraudulent conveyance provisions of the United States Bankruptcy Code.  The Act provides that a disclaimer is not a “transfer, assignment or release.”  Accordingly, it is not a transfer of property of the estate or of property belonging to the disclaimant.  If the disclaimer is timely, it may even be made after an obligation has been created and after the person from whom the disclaimant would inherit has died.

             Under the right facts, disclaimers under the Act can be a useful tool for counsel advising clients in difficult circumstances.  Persons seeking to take advantage of the Act should not delay: time is of the essence.

             This memo is a general statement of the law on the subject of disclaimers, and facts may change the outcome.  This is not advice regarding any particular case, and any person seeking particular advice is advised to contact me, E. Dwight Taylor, at The Rocky Mountain Law Group, LLC, 10800 E. Bethany Drive, Ste 550, Aurora CO 80014, 303-597-0202, or dtaylor@rmlawgrp.com. Information about me and my firm can be found at www.rmlawgrp.com.