What do “Hulk Hogan” (born Terry Gene Bollea) and Disclaimers have in common? Potentially, Hulk’s daughter, Brooke Hogan (“Brooke”), if sources portray the situation accurately. I recently read an article asserting that Hulk Hogan had his affairs in order and had created a Revocable Trust prior to his death. For the curious, the terms of a Revocable Trust generally do not become public, which means that Hogan’s plan may remain a mystery. That changes if someone initiates a lawsuit. In this situation, that could happen given the discord demonstrated by his family in public.
Let’s start at the beginning, or rather the end, of Hogan’s life. Hogan’s wife of nearly two years, Sky Daily (“Sky”), and his two children, Nick Hogan and Brooke, survive him. Hogan left an estimated $25 million estate that includes his real estate portfolio of $11 million, his Clearwater, Florida compound, several business ventures, a bar, plans for another establishment near Madison Square Garden, along with trademarks and intellectual property related to his wrestling persona. If Hogan failed to update his Estate Plan after marrying Sky, Florida law entitles her to thirty percent (30%) of the elective estate. Of course, Hogan’s plan could give her more than that and unless Hogan’s Estate Plan becomes public, we must guess. While interesting, that’s not the focus of this blog post.
According to several articles, in 2023 Brooke asked Hogan’s financial advisor to remove her as a beneficiary of his estate. Reports indicate that Brooke made this request because she distrusted people in her father’s inner circle whom she believed were taking advantage of him. Here’s the twist, the financial advisor has no power to remove Brooke as a beneficiary, even of the accounts under the financial advisor’s control. Hogan himself would have had to undertake that task. If Brooke wants no part of her father’s Estate, then she needs to execute a disclaimer, it’s her only option, and that’s the focus of this blog post.
One might think that it’s easy to disclaim, in fact, it’s not. Executing a “qualified disclaimer” takes some planning. It’s important to note that a qualified disclaimer means that Section 2518 of the Internal Revenue Code (“IRC”) treats the disclaimant as though they predeceased the decedent, thereby avoiding potential gift tax consequences for the disclaimant. A non-qualified disclaimer, on the other hand, results in a gift from the disclaimant to the new beneficiary, which may trigger undesirable tax consequences. To avoid this, it’s essential to meet all the requirements for a qualified disclaimer.
First, the disclaimer needs to be in writing. Next, the disclaimer needs to be irrevocable. It cannot contain any contingencies, be subject to change, be reversed or be qualified in any other way. The disclaimant cannot disclaim based upon any condition, for example, another individual also disclaiming. The disclaimant needs to execute the disclaimer timely, within nine months of the creation of the interest, or within nine months of the beneficiary attaining the age of twenty-one (21). Determining the creation of an interest requires a careful review of the document creating the interest and the facts and circumstances surrounding that creation. In PLR 201407009, a settlor established an irrevocable trust in 1977 for the benefit of the settlor’s descendants. More than thirty-five (35) years later, a descendant who became eligible to receive assets under that trust was approaching the age of majority and inquired whether a disclaimer was possible. The Internal Revenue Service opined that the descendant could disclaim as long as the disclaimer met the other rules under IRC §2518. This PLR demonstrates the importance of understanding the facts and circumstances surrounding the interest sought to be disclaimed.
In addition to the requirements noted above, the disclaimant needs to execute the disclaimer before accepting any benefits from the property. If the disclaimant accepted benefits, then the disclaimant cannot disclaim. Interestingly, it’s possible to disclaim a partial interest in property. Finally, the disclaimant cannot control or direct the property in any way. This means that the disclaimant cannot say, I disclaim to David. That would be a gift. The disclaimant simply disclaims the property, and the document creating the interest directs what happens next and who receives the disclaimed property.
Inexperienced Estate Planning attorneys may not think of a disclaimer even when the situation warrants it. For example, some beneficiaries don’t need the money or property, perhaps the individual already has a taxable Estate without the gift. Perhaps they prefer that the property pass to the next individual in line for the gift, such as an adult child just graduating from college or buying their first home. Disclaimers add yet another dimension to the wild, wonderful world of Estate Planning and give us yet another tool to use. Properly executed disclaimers allow individuals to avoid tax and may help achieve a more desirable result than simply accepting property and then gifting it away.