Yahoo Finance Generational Wealth: Should You Split Your Inheritance With Your Partner?
If you’re married and you receive an inheritance, it can put you in a tricky situation you may feel unequipped to handle. For example, you might feel obliged to share it with your spouse, or your spouse may feel entitled to half of it. If you live in a community property state, you may even think you have no choice in the matter and that you are legally required to share at least a portion of your inheritance with your spouse.
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But the fact of the matter is that in all 50 states, regardless of individual laws, federal law dictates that no inheritance is legally required to be shared with a spouse. However, even that blanket declaration can get muddled, based on how you handle your inheritance.
Here’s a look at the legal requirements for an inheritance, how you should title it and how to deal with the surrounding emotional and ethical obligations that are often associated with inheritances — especially in relation to your spouse.
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Legal Ramifications of an Inheritance
Legally speaking, an inheritance is always considered separate property. This is regardless of whether you receive your inheritance before, during or after a marriage, and it’s even true if you live in a community property state.
As long as you keep your inheritance as legally separate property, you won’t ever be required to share it with your spouse, even if you end up divorcing.
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How Titling Your Inheritance Matters
Titling is the area in which the proceeds of an inheritance can get messy. Although you’re the only legal owner of an inheritance you receive, if you transfer that ownership in any manner, you’ve lost your sole legal claim forever.
For example, if you receive a $100,000 check as an inheritance and deposit it into your joint checking account, your spouse immediately becomes a partial owner of that money. In a community property state, your spouse now has legal ownership over one-half of your inheritance. This is true even if you accidentally put the money into your joint account and transferred it into an account in your sole name 30 seconds later.
The same is true if you use that money to buy a house and put the title in the joint name of you and your spouse. The legal term for all of these actions is “transmutation of property,” which means you are changing (“transmuting”) your inheritance from single name to joint name.
Emotional and Ethical Issues Surrounding Inheritances
Of course, legal issues aren’t the only ones surrounding an inheritance. More often than not, emotions are attached to finances, as well.
For example, imagine a scenario in which two spouses share a joint bank account, have both their names on the title of their house and otherwise share everything financially. If one of the spouses receives an inheritance, the other may expect that the funds will be deposited into their joint account for them both to share.
However, the inheriting spouse may have been advised by a lawyer or even by friends to keep that money separate in the off chance that the marriage dissolves sometime in the future. This can obviously rub the non-inheriting spouse the wrong way.
Another common scenario is one in which an inheriting spouse intends to share everything financially but is requested by the decedent to keep the inherited money separate. In this case, it can be hard to decide whether or not the beneficiary should go against the wishes of the decedent or do as requested at the risk of creating conflict with their spouse.
What Do Experts Say To Do?
The bottom line when it comes to inheritances is that it can be hard to make the right financial move without risking an emotional reaction. For this and so many other reasons, it makes sense for a couple to sit down with a financial planner and/or an attorney to go over the options and outcomes of any future inheritances before they actually occur. This way, a couple can reach an agreement about how to handle these types of situations before emotions get heated.
According to Jonathan Rosenfeld, founder and managing attorney at Rosenfeld Injury Lawyers, splitting or sharing inheritance with a partner, whether married or not, requires careful consideration and planning to ensure fairness and mutual understanding.
Understand Legal Ramifications
“Firstly, it’s crucial to understand the legal implications of inheritance within your specific jurisdiction,” Rosenfeld said. “Laws regarding inheritance vary greatly from one place to another, and they can significantly impact how assets are divided between partners.”
Rosenfeld advises consulting with a knowledgeable attorney who specializes in estate planning and family law and who can provide invaluable guidance tailored to your individual circumstances.
Communicate
In addition to legal considerations, Rosenfeld said it’s essential to have open and honest communication with your partner about your intentions regarding the inheritance.
“Discussing your wishes, expectations and concerns openly can help prevent misunderstandings and conflicts down the line. It’s also important to consider the financial needs and goals of both partners when making decisions about how to handle the inheritance,” he explained.
Decide What’s Best for Your Situation
In some cases, Rosenfeld noted that couples may choose to keep inherited assets separate, especially if they have significant pre-existing assets or if there are concerns about protecting inheritance in the event of a future separation or divorce.
However, he added that other couples may prefer to integrate inherited assets into their joint finances, viewing them as shared resources to be used for the benefit of the relationship as a whole.
“There is no one-size-fits-all answer when it comes to splitting or sharing inheritance with a partner,” Rosenfeld explained. “The best approach will depend on the unique circumstances and preferences of the individuals involved. Seeking guidance from financial advisors, estate planning professionals and legal experts can help ensure that you make informed decisions that align with your values and goals.”
Cindy Lamothe contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: Generational Wealth: Should You Split Your Inheritance With Your Partner?
