As a follow-up to the “Why an Inheritance is Usually Not Taxable Post” we thought it timely to go one step farther and explain inheritance asset flow and the unique characteristics an inheritance has, even if you reside in a community property (most assets viewed as joint) state.
Inheritance has Direct Ownership Tracking
An inheritance is a unique transfer of assets with a very detectable and separable source. Given that inheritances are mostly determined by either beneficiary designations on specific assets such as an IRA beneficiary, Wills, Trusts or a transfer on death (TOD) which is basically specific beneficiaries for funds/assets, the source of an inheritance is very specific and very clear, which gives it unique characteristics regarding joint or co-mingled assets.
So how does an Inheritance Stay Separate?
It’s as easy as keeping the asset in her/his own name, and ABSOLUTELY not adding or depositing co-mingled assets into the separate property.
How to make Separate Property Joint?
Just the opposite as above, mix it up, in many cases there may be situations where there is a need or desire to make separate property joint property, possibly tax, inheritance tax, other asset location issues may make this appealing; taking the separate property adding a spouse or significant other and mixing the assets will efficient will effectively make the separate property joint property.
Once Joint, it is nearly impossible to separate again!
Have a Great “Inheritance Separate or Co-Mingled” Day!
John A. Kvale CFA, CFP