Disclaim Reform and UDPIA: The Disappointing Amendments of 2006

AdamJ. Hirsch and RichardR. Gans have published their article, DisclaimReform and UDPIA: The Disappointing Amendments of 2006, on SSRN.  It was originally runin the December 2006 issue of Estate Planning.

Here is their abstract:

This article assesses amendmentsmade to the Uniform Disclaimer of Property Interests Act (UDPIA) in 2006. Thearticle argues that these amendments – which are confined to a single provisionof UDPIA concerning the devolution of a disclaimed interest in a remainder, orin a living trust – suffice to cure a glitch in UDPIA. Nevertheless, thesolution lighted on by the drafters of the amendment is sub-optimal, in that itcontradicts the probable intent of the benefactor in some instances and createsan asymmetry between the devolution of disclaimed property under a will and aliving trust, even when the two are functionally indistinguishable.

This article also argues that the2006 amendments are too limited. They leave untouched sections of UDPIA thatcall for reform, either because they are constitutionally suspect or becausethey endanger the effectiveness of disclaimers for tax purposes under theInternal Revenue Code. The article explores how UDPIA’s transitional rule, itssafe-harbor for disclaimers that satisfy the IRC, and its provision givingeffect to both statutory and common law disclaimers raise either one or both ofthese potential objections. Finally, and perhaps most disturbingly, UDPIA’sprovision covering disclaimers of joint interests in property creates aloophole in fraudulent conveyance law that asset protection planners canexploit to protect wealthy individuals who face large malpractice or other liabilities.

The article urges the drafters ofUDPIA to revisit these concerns and, if necessary, urges local draftingcommittees to address them independently. Since most of the states that haveadopted UDPIA thus far have already tinkered with it in substantive ways,further tinkering will conform with the existing pattern of enactment of thisUniform Act.