You Renounce an Inheritance: Have You Made a "Transfer?"
Not according to the Fifth Circuit, applying Louisiana law to determine the meaning of "property" or "interest in property." Here's the short version of the facts in In re Laughlin, 602 F.3d 417 (5th Cir. 2010).
On June 4, 2007, debtor completed a procedurally proper pre-petition disclaimer of any interest in his father's estate. On July 21, 2007, he filed Chapter 7. The trustee filed an AP seeking denial of discharge on the grounds debtor's renunciation was a transfer of property made within one year of bankruptcy with the intent to delay, hinder or defraud creditors. The Bankruptcy Court agreed, applying the rationale of the U. S. Supreme Court in Drye v. United States, 528 U.S.49, 120 S.Ct. 474, 145 L.Ed. 2d 466 (1999)(holding that a disclaimed interest was "property" subject to IRS liens). The District Court affirmed. The 5th Circuit, however, saw it differently, finding Drye inapplicable.
The issue, in a nutshell, is whether the disclaimer of an inheritable interest operates as a "transfer" of "property" or a "property interest." If there was no transfer of property or a property interest, that is the end of the discussion. Now, the question of whether a transfer has occurred is one of federal law, since the applicable statute defines "transfer." That part is easy enough. The difficulty arises, however, in defining "property" or "property interest" since neither is defined in the Bankruptcy Code. It thus becomes necessary to look to state law.
Most states appear to employ a "relation back" fiction to hold that if you disclaim an inheritable interest, that disclaimer "relates back" so that the beneficiary never receives or possesses the interest. There is accordingly nothing to transfer, and there can be no fraudulent transfer for purposes of Section 727. Alabama's statute (Ala. Code 43-8-294) reads similarly to those from states cited in McLaughlin, in expressly providing for relation back. I would suspect the Eleventh Circuit would see it similarly if presented with the question.
