or a part of the residuary of the trust. Nonetheless, it is something that has to be considered.

A qualified disclaimer will avoid these tax problems and allow you to give the $28,000 to the contingent beneficiaries and close out the trust, but the qualified disclaimer must be made within 9 months after your father's death (presumably, that is when the niece's interest became vested) or on your niece's 21st birthday, whichever occurs later. If your niece is already 21, then time is running out because you said your father died in April

Question: My father passed away in April 2006. I have distributed the funds according to the Trust except for approximately $28,000 that is to go to my niece (my father's granddaughter). She has not returned her W9 as she is hesitate to receive the money because of the fact that she is on SSI.

I want to close the Trust account and be able to file the necessary taxes the beginning of 2007.

Have you ever heard of a similar situation? What do you suggest I do so that I can put closer to this. J.P.

Answer: Dear J.P. - As the Trustee, you can't just go ahead and distribute your niece's share of the trust to someone else. That would make you vulnerable to a lawsuit if your niece decided later on that she wanted the money.

In order to protect the trust and yourself, you either have to distribute the money to her or somehow terminate her rights under the trust. One way to do that is to have your niece give up her rights under the trust by signing a written document to that effect. The document should be witnessed and notarized, just to be safe - and you should check your state's laws on this to make sure it's legally effective.

While that may solve your problem, it won't solve hers. That's because, under the tax laws, your niece will be deemed to have received the money anyway and then made a gift of it to someone else, presumably the contingent beneficiaries under the trust. That would require the filing of a federal gift tax return on her part since the gift would exceed the annual gift tax exclusion ($12,000 currently).

There is a way out of both problems, but time is running out if it hasn't already. Under the tax laws, your niece could sign a qualified disclaimer, which would allow your niece to give up the $28,000 without incurring any adverse gift tax consequences. Although your niece may not be too concerned about gift taxes at this point, she may come to regret it later on if she does come into a significant amount of money. In addition, there is a possibility that some of the $28,000 may be taxable to her for income tax purposes. That would depend upon whether the distribution to her is a specific gift or a part of the residuary of the trust. Nonetheless, it is something that has to be considered.

A qualified disclaimer will avoid these tax problems and allow you to give the $28,000 to the contingent beneficiaries and close out the trust, but the qualified disclaimer must be made within 9 months after your father's death (presumably, that is when the niece's interest became vested) or on your niece's 21st birthday, whichever occurs later. If your niece is already 21, then time is running out because you said your father died in April o

. - As the Trustee, you can't just go ahead and distribute your niece's share of the trust to someone else. That would make you vulnerable to a lawsuit if your niece decided later on that she wanted the money.

In order to protect the trust and yourself, you either have to distribute the money to her or somehow terminate her rights under the trust. One way to do that is to have your niece give up her rights under the trust by signing a written document to that effect. The document should be witnessed and notarized, just to be safe - and you should check your state's laws on this to make sure it's legally effective.

While that may solve your problem, it won't solve hers. That's because, under the tax laws, your niece will be deemed to have received the money anyway and then made a gift of it to someone else, presumably the contingent beneficiaries under the trust. That would require the filing of a federal gift tax return on her part since the gift would exceed the annual gift tax exclusion ($12,000 currently).

There is a way out of both problems, but time is running out if it hasn't already. Under the tax laws, your niece could sign a qualified disclaimer, which would allow your niece to give up the $28,000 without incurring any adverse gift tax consequences. Although your niece may not be too concerned about gift taxes at this point, she may come to regret it later on if she does come into a significant amount of money. In addition, there is a possibility that some of the $28,000 may be taxable to her for income tax purposes. That would depend upon whether the distribution to her is a specific gift or a part of the residuary of the trust. Nonetheless, it is something that has to be considered.

A qualified disclaimer will avoid these tax problems and allow you to give the $28,000 to the contingent beneficiaries and close out the trust, but the qualified disclaimer must be made within 9 months after your father's death (presumably, that is when the niece's interest became vested) or on your niece's 21st birthday, whichever occurs later. If your niece is already 21, then time is running out because you said your father died in April

you should check your state's laws on this to make sure it's legally effective.

While that may solve your problem, it won't solve hers. That's because, under the tax laws, your niece will be deemed to have received the money anyway and then made a gift of it to someone else, presumably the contingent beneficiaries under the trust. That would require the filing of a federal gift tax return on her part since the gift would exceed the annual gift tax exclusion ($12,000 currently).

There is a way out of both problems, but time is running out if it hasn't already. Under the tax laws, your niece could sign a qualified disclaimer, which would allow your niece to give up the $28,000 without incurring any adverse gift tax consequences. Although your niece may not be too concerned about gift taxes at this point, she may come to regret it later on if she does come into a significant amount of money. In addition, there is a possibility that some of the $28,000 may be taxable to her for income tax purposes. That would depend upon whether the distribution to her is a specific gift or a part of the residuary of the trust. Nonetheless, it is something that has to be considered.

A qualified disclaimer will avoid these tax problems and allow you to give the $28,000 to the contingent beneficiaries and close out the trust, but the qualified disclaimer must be made within 9 months after your father's death (presumably, that is when the niece's interest became vested) or on your niece's 21st birthday, whichever occurs later. If your niece is already 21, then time is running out because you said your father died in April

ing out if it hasn't already. Under the tax laws, your niece could sign a qualified disclaimer, which would allow your niece to give up the $28,000 without incurring any adverse gift tax consequences. Although your niece may not be too concerned about gift taxes at this point, she may come to regret it later on if she does come into a significant amount of money. In addition, there is a possibility that some of the $28,000 may be taxable to her for income tax purposes. That would depend upon whether the distribution to her is a specific gift or a part of the residuary of the trust. Nonetheless, it is something that has to be considered.

A qualified disclaimer will avoid these tax problems and allow you to give the $28,000 to the contingent beneficiaries and close out the trust, but the qualified disclaimer must be made within 9 months after your father's death (presumably, that is when the niece's interest became vested) or on your niece's 21st birthday, whichever occurs later. If your niece is already 21, then time is running out because you said your father died in April

or a part of the residuary of the trust. Nonetheless, it is something that has to be considered.

A qualified disclaimer will avoid these tax problems and allow you to give the $28,000 to the contingent beneficiaries and close out the trust, but the qualified disclaimer must be made within 9 months after your father's death (presumably, that is when the niece's interest became vested) or on your niece's 21st birthday, whichever occurs later. If your niece is already 21, then time is running out because you said your father died in April of this year.

If your niece decides not to sign a qualified disclaimer or any other document relinquishing her interest in the trust, then you could file a request for a declaratory judgment. Most states have enacted legislation authorizing their courts to issue declaratory judgments and this may be the appropriate thing to do in your case. In effect, you would ask the court to decide what you should do with your niece's share of the trust.

Finally, I would suggest that someone take a moment or two to find out whether the money would actually be taken by the state. The state will only recover the actual amount of benefits paid to your niece, so that might be less than the $28,000 she'll receive from the trust. In that case, she could pocket the difference.

Most people think that the state will take all the money that is given to someone like your niece. But, that's not the case. A simple telephone call to the proper social services office will tell your niece how much the state will take out of the $28,000. Who knows, she may find that she can keep a good portion of it.

To summarize, you should do some quick calculations to see if a qualified disclaimer can still be made. You should also do whatever you can to determine how much of the $28,000 would actually be taken by the state. Once you have that information, then you can discuss it with your niece and have her take the appropriate action. If she refuses to do anything, then your only recourse is to request a declaratory judgement from your state courts.