Generally, inheritance of one spouse is considered separate property, for as long as it is not commingled with or transmuted to marital property. However, when a spouse dies, all the inheritance the spouse received during his lifetime will form part of that spouse’s estate. Your spouse will then be entitled to receive a portion of your estate, which includes your inheritance, unless your spouse waives the elective hare.
In most states, when you inherit property, this property is considered your separate property and not marital property. Thus, if you divorce your spouse, your spouse will not be entitled to any portion of your inheritance.
There are exceptions to this rule of separation. The first exception is when your inherited property has been commingled with marital property. For example, when you receive a cash legacy of $100,000 from your parent and you put this money in a joint bank account with your spouse, which you both use for your household expenses. In this case, because you have commingled your inheritance with the joint bank account, your inheritance becomes marital property. There is a presumption that you intended to make a gift of your separate property to your spouse. If you want to keep inherited property separate, you should keep it in a separate bank account which you solely own.
Another exception is the transmutation of inherited property into marital property. For example, you inherited a house from your parents and you put your spouse’s name in the deed, together with yours, then that inherited house has transmuted to become marital property.
The character of inheritance as separate or marital property, however, is only relevant in cases of divorce. When spouses divorce, assets are distributed, and it becomes important to identify which is separate from marital property, because only marital property is divided between the spouses.
When you die, however, everything that you own, which includes your inheritance. forms part of your gross estate. In New York, your spouse is entitled to a share of your estate. In that case, your spouse may be entitled to a part of your inheritance that is included in your estate when you die.
In New York, how much your spouse is entitled to depends on whether you died with or without a will.
If you died without a will, your spouse is entitled to your entire estate (which may include your inheritance) if you did not have children. If you had children, your spouse is entitled to the first $50,000 plus ½ of the remainder of the estate. The remaining balance is left to your children.
If you died with a will, your spouse is entitled to whatever you left in your will for as long as it is at least 1/3 of your estate. If you left your spouse less than 1/3 of your estate, your spouse is entitled to elect to receive 1/3 of your estate. This estate includes testamentary substitutes, such as Totten trust bank accounts.
The exception to this spousal elective share is when your spouse waives her right to it, usually through a prenuptial or postnuptial agreement.
Because your inheritance will form part of your estate when you die, your spouse will always be entitled to a part of your inheritance unless you use the proper estate planning tools. However, any estate planning tool you want to use to keep your inheritance separate from your estate needs to be executed more than one year before your death. Otherwise, in New York, a transfer made within one year prior to death will be considered a testamentary substitute and will form part of the decedent’s estate for purposes of computing the spousal elective share.
Should you need an attorney to help you plan your estate with whatever objective you seek to achieve, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].