How Can I Protect My Inheritance? (2023)

Are you looking for legal ways to keep your legacy safe, or do you want to know if you have to share your inheritance with your spouse?

Now is a good time to get your facts straight and your paperwork in order – it can affect your future, for better or for worse.

This detailed article, compiled by our team of law experts, will equip you with all the facts about inheritance protection and explain your legal rights concerning your legacy so you can make informed decisions.

3 Ways to Safeguard your Inheritance.

How Can I Protect My Inheritance? (1)

1. Know how to keep your inheritance safe during a divorce

The quickest and easiest solution to protecting your inheritance is to discuss the matter openly with your former partner and reach an amicable agreement.

(Video) How to Protect Your Child's Inheritance from his or her Spouse- California Wills and Trusts Attorney

You may consider seeing a family mediation lawyer, or seek advice on signing the correct documents to ensure protection for your inheritance.

If you reach an understanding with your ex-partner, you both sign consent orders with the family court or a binding financial agreement with your lawyers. If negotiations between you fail, and if attempts to resolve conflict through mediation are also fruitless, you can apply for property or financial orders.

A note on property and financial orders:

The Family Law Act 1975 (Cth) (the Act) explains in detail all the factors the Court considers when they decide on dividing property. Matters such as what the contributions were, and the future needs of both parties, affect the court’s decision. It is best to get legal advice when applying for property or financial orders.

Tip: Protect your property

Expert legal help can get a Court Order in place to stop your money from being spent or your property from being sold during a separation process.

(Video) How do I protect my inheritance from lawsuits? | #AskAmity Episode 41

Book your Free 15-Minute Consultation now.

2. Learn what the law says about your inheritance

Under the Act, your inheritance is regarded as part of your family’s pool of assets to be considered when a property settlement is negotiated. Australia’s Family Court assesses each case individually as everyone’s circumstances are different.

Your inheritance may be:

  • divided between you and your ex-partner or,
  • you could be the sole beneficiary.

For example, if you received cash as an inheritance, the Court may see it as a financial resource you could use to support yourself after separation – a benefit your ex-partner does not share. As this places you in a financially stronger position than your ex-partner, the Court will take it into account when dividing the assets.

However, the Court will also consider how long ago you received your inheritance before making a decision.

The timing of your inheritance:

(Video) How to Protect Family Wealth | How to Protect My Inheritance

If you’ve received your inheritance before or early in your marriage
If you’ve received your inheritance before, or very early during your marriage or de facto relationship, chances are it will be viewed as a personal asset you contributed to the relationship. So, if you separate, your inheritance will be part of the pool of assets shared between you and your ex-partner.

If you’ve received your inheritance during or after your relationship ended
If you were made a legacy late during your marriage or even after you have separated, your inheritance is usually not viewed as a financial contribution to the asset pool the asset pool. However, the size of the asset pool is taken into account to ensure distribution between parties is fair:

  • If the combined family assets amount to less than your inheritance, your inheritance could be seen as part of the asset pool. The reason is that both parties contributed financially during the relationship, so it may seem unjust to divide the assets without including the inheritance.
  • For instance, if the person who has not received the inheritance made the largest financial contribution, the inheritance may be included in the asset pool to ensure a fair split.

Other points the Court will consider that will affect what happens to your inheritance during separation are:

  • The intention of the person who left the inheritance
    If the person who left you an inheritance had specific stipulations about how it should be used, it will have legal implications to how it is shared.
  • The person/s who took care of the deceased
    If the deceased lived with you and your ex-partner, for instance, and your ex-partner helped you take care of that person before they passed away, your inheritance will most likely be viewed as part of the family assets.
  • What the inheritance was used for during the relationship
    Where the inheritance was used by the family to, for instance, maintain or renovate the shared home, or for daily expenses, it will be seen as a contribution to the asset pool made by the person who received the inheritance.

3. Know your best option – a Binding Financial Agreement or Consent Orders

Binding financial agreements and consent orders are both legally binding ways to settle any property matters you may have.

Binding Financial Agreement

  • A Binding Financial Agreement is a contract between two people and operates independently from the Court or anyone else.
  • By signing a binding financial agreement, married couples or those in de facto relationships agree to manage their finances themselves during their relationship.
  • The agreement also include details on how the assets are divided and what each party’s financial obligations are in case of a breakup.
  • The terms of a binding financial agreement doesn’t have to be fair, for instance; one party may receive a more substantial settlement than the other.
  • It is an agreement that doesn’t pertain to parental matters.
  • There are formal requirements to be adhered to, and both parties need their separate lawyers to sign the binding financial agreement; otherwise, it is invalid.

Benefits of signing a binding financial agreement:

(Video) How Do I Protect My Kids’ Inheritance from Their Divorcing Spouses?

  • A binding financial agreement is helpful in all kinds of relationships, but especially if you have an inheritance, you would like to keep separate from the assets you bring into a marriage or de facto relationship.
  • It is especially popular with people entering into a second marriage or those deciding to live together. They may have experienced the negative effect of not having signed an agreement before and now want to avoid making the same mistake.
  • It provides security, peace of mind and saves a lot of time and money as couples will not need a lawyer in future, or to go to court.
  • Although it is advisable to sign a binding financial agreement before you get married or move in with your partner, you can do so at any time; during your marriage or de facto relationship and before or after separation.

Consent orders

  • Consent orders are filed in court.
  • The Court will only make orders on matters that the couple have agreed upon and if the Court deems the terms fair and just.
  • Consent orders cover financial matters, such as inheritance protection and parental issues.

Benefits of signing a consent order:

  • You can draw up consent orders as a couple, and you don’t need a lawyer as a witness, unlike a binding financial agreement.
  • By signing the consent orders, you in effect agree to the terms as set out in the document, and once the court approves it, it’s legal.
  • You don’t have to go to court to apply for consent orders.

Tip: Get a property settlement

There is a time limit to applying to the Court regarding a property settlement. If you are married, it’s within 12 months of your final divorce date, and if you are in a de facto relationship, it’s within two years of the date of final separation.

Before signing any agreement, it is always best to get legal and financial advice. Our lawyers have more than three decades of experience in dealing with family law in Melbourne.

Contact Rose Lawyers to help you with any questions you may have about whether you should be sharing your inheritance with your spouse or if you need a family lawyer to meditate a separation for you. Book your Free 15-Minute Consultation now.


How Can I Protect My Inheritance? ›

If you are expecting an inheritance from parents or other family members, suggest they set up a trust to deal with their assets. A trust allows you to pass assets to beneficiaries after your death without having to go through probate.

How can I protect my inheritance from the IRS? ›

Here are 4 ways to protect your inheritance from taxes:
  1. See if the alternate valuation date will help. For tax purposes, the estates are evaluated based on their fair market value at the time of the decedent's death. ...
  2. Transfer your assets into a trust. ...
  3. Minimize IRA distributions. ...
  4. Make charitable gifts.

Do I need to report inheritance money to IRS? ›

Regarding your question, “Is inheritance taxable income?” Generally, no, you usually don't include your inheritance in your taxable income. However, if the inheritance is considered income in respect of a decedent, you'll be subject to some taxes.

How much money can you inherit without having to pay taxes on it? ›

According to the Internal Revenue Service (IRS), federal estate tax returns are only required for estates with values exceeding $12.06 million in 2022 (rising to $12.92 million in 2023). If the estate passes to the spouse of the deceased person, no estate tax is assessed.318 Taxes for 2022 are paid in 2023.

Do I have to pay taxes on a $10 000 inheritance? ›

In California, there is no state-level estate or inheritance tax. If you are a California resident, you do not need to worry about paying an inheritance tax on the money you inherit from a deceased individual. As of 2023, only six states require an inheritance tax on people who inherit money.

Do beneficiaries pay taxes on inherited money? ›

Generally, beneficiaries do not pay income tax on money or property that they inherit, but there are exceptions for retirement accounts, life insurance proceeds, and savings bond interest. Money inherited from a 401(k), 403(b), or IRA is taxable if that money was tax deductible when it was contributed.

Can the IRS come after my inheritance? ›

Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments or property.

How do I deposit a large cash inheritance? ›

A good place to deposit a large cash inheritance, at least for the short term, would be a federally insured bank or credit union. Your money won't earn much in the way of interest, but as long as you stay under the legal limits, it will be safe until you decide what to do with it.

Can my parents give me $100 000? ›

Lifetime Gifting Limits

Each individual has a $11.7 million lifetime exemption ($23.4M combined for married couples) before anyone would owe federal tax on a gift or inheritance. In other words, you could gift your son or daughter $10 million dollars today, and no one would owe any federal gift tax on that amount.

What is considered a large inheritance? ›

In general, a large inheritance is considered to be a sum of money or assets that is significantly larger than the individual's typical annual income. Specifically, for some individuals, a large inheritance may be considered to be $100,000 or more, while for others, it may be several million dollars.

What six states have inheritance tax? ›

What states have inheritance taxes? The six states that impose an inheritance tax are Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Inheritance tax only applies when the person who dies and passes on assets lived in one of those states that has an inheritance tax.

What is the tax limit amount is $16000 per individual? ›

The gift tax limit for 2022 was $16,000. This amount, formally called the gift tax exclusion, is the maximum amount you can give a single person without reporting it to the IRS.

What happens when I inherit money? ›

Typically, the estate will pay any estate tax owed, with the beneficiaries receiving assets from the estate free of income taxes (see exception for retirement assets in the chart below). As a beneficiary, if you later sell or earn income from inherited assets, there may be income tax consequences.

Does inheritance affect Social Security? ›

Income from working at a job or other source could affect Social Security and SSDI benefits. However, receiving an inheritance won't affect Social Security and SSDI benefits.

Do you get a 1099 for inheritance? ›

This means that when the beneficiary withdraws those monies from the accounts, the beneficiary will receive a 1099 from the company administering the plan and must report that income on their income tax return (and must pay income taxes on the sum).

What is considered a small inheritance? ›

What Is Considered a Small Inheritance? Based on the same Federal Reserve survey, a small inheritance can be characterized as one that falls below the $46,200 average. That said, any inheritance is a blessing and should be graciously accepted, especially when considering how less than 30% of individuals receive one.

Do I have to report beneficiary money? ›

Answer: Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received.

What states have no inheritance tax? ›

The states with this powerful tax combination of no state estate tax and no income tax are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Washington doesn't have an inheritance tax or state income tax, but it does have an estate tax.

Is inherited money earned income? ›

Generally, an inheritance is not considered earned income, so you will not have to report your inheritance on your state or federal income tax return, and it will not be subject to Federal or State income tax. There are, however, some exceptions: The two most common exceptions are retirement plans and annuities.

How does the IRS know if you give a gift? ›

The IRS finds out if you gave a gift when you file a form 709 as is required if you gift over the annual exclusion. If you fail to file this form, the IRS can find out via an audit.

What happens when you inherit a house from your parents? ›

Not only will the inheriting party be responsible for maintaining the home, but they'll also be responsible for its financial upkeep. Paying utility bills, property taxes, and homeowner's insurance will fall on the shoulders of the inheritor, as well as any renovations and updates that may need to be done.

Can the IRS come after me for my parents debt? ›

If you don't file taxes for a deceased person, the IRS can take legal action by placing a federal lien against the Estate. This essentially means you must pay the federal taxes before closing any other debts or accounts. If not, the IRS can demand the taxes be paid by the legal representative of the deceased.

Can I deposit a large inheritance check into my bank account? ›

Bottom Line. You can deposit a large cash inheritance in a savings account, either through a check or direct wire to your bank.

What happens if you inherit a large sum of money? ›

Your first action to take when receiving a lump sum is to deposit the money into an FDIC-insured bank account. This will allow for safekeeping while you consider how to make the best use of your inheritance. The maximum coverage for each FDIC-insured account is $250,000.

What to do with $50 000 inheritance? ›

Some choices include creating an emergency fund, paying off high-cost debt, building up retirement savings, saving for kids' educations and buying personal luxuries. While you won't owe taxes on inheritance, earnings from the funds are subject to income taxes.

Can my mom sell me her house for $1? ›

Giving someone a house as a gift — or selling it to them for $1 — is legally equivalent to selling it to them at fair market value. The home is now the property of the giftee and they may do with it as they wish.

Can my parents give me $20000? ›

Do I have to pay taxes on a $20,000 gift? You do not need to file a gift tax return or pay gift taxes if your gift is under the annual exclusion amount per person ($16,000 in 2022). If you do exceed that amount, you don't necessarily need to pay taxes.

Can my parents give me $50000? ›

You most likely won't owe any gift taxes on a gift your parents make to you. Depending on the amount, your parents may need to file a gift tax return. If they give you or any other individual more than $34,000 in 2023 ($17,000 per parent), they will need to file some paperwork.

What is the average amount people inherit? ›

And regardless of income, the median inheritance for someone aged 56-65 was about $19,800. The median inheritance for groups younger than 46 or older than 75 was consistently under $10,000.

At what age do most people inherit? ›

We find that inheritance size is highly correlated with income, particularly at the top end of the income distribution; the bulk of inheritances are received between the ages of 46 and 75; and that most inheritances come from parents.

Which group is most likely to receive a family inheritance? ›

White families are both more likely to have received an inheritance and are also more likely to expect to receive an inheritance: about 17 percent of White families expect an inheritance, compared to 6 percent of Black families, 4 percent of Hispanic families, and 15 percent of other families.

How do I avoid inheritance tax on my parents house? ›

5 Ways to Avoid Paying Taxes on Inherited Property
  1. Sell the Inherited Property as Soon as Possible. ...
  2. Turn the Inherited Home into a Rental Property. ...
  3. Use the Inherited Property as a Primary Residence. ...
  4. 1031 Exchange. ...
  5. Disclaim the Inheritance.

Who pays US inheritance tax? ›

An inheritance tax is a state tax that you pay when you receive money or property from the estate of a deceased person. Unlike the federal estate tax, the beneficiary of the property is responsible for paying the tax, not the estate.

What state has the highest inheritance tax? ›

State estate taxes: Top tax rates and exemption thresholds, tax year 2022
  • Connecticut: 12%, $9,100,000.
  • District of Columbia: 16%, $4,000,000.
  • Hawaii: 20%, $5,490,000.
  • Illinois: 16%, $4,254,800.
  • Maine: 12%, $6,010,000.
  • Maryland: 16%, $5,000,000.
  • Massachusetts: 16%, $1,000,000.
  • Minnesota: 16%, $3,000,000.

Do you have to pay taxes on gifts over $16000? ›

But most gifts are not subject to the gift tax. For instance, you can give up to the annual exclusion amount ($16,000 in 2022) to any number of people every year, without facing any gift taxes.

What is the taxable income on $16000? ›

If you make $16,000 a year living in the region of California, USA, you will be taxed $1,849. That means that your net pay will be $14,151 per year, or $1,179 per month.

How much tax does a person pay on $100000? ›

If you make $100,000 a year living in the region of California, USA, you will be taxed $29,959. That means that your net pay will be $70,041 per year, or $5,837 per month. Your average tax rate is 30.0% and your marginal tax rate is 42.6%.

Do you inherit debt if you inherit money? ›

The person's estate—the property they owned—is responsible for their remaining debt. Typically, a representative of the estate will use the estate's assets to pay any outstanding debt instead of a spouse or child having to pay out of their own wallet.

Do banks report inheritance? ›

Inheritances in the form of cash are not taxable to the recipient at the federal level, so the money in the savings account that you are inheriting from your father is not taxable to you nor do you have to report it on your federal tax return.

How do I get around inheritance tax? ›

Cash, investments or property held in a trust sit outside of your estate for inheritance tax purposes, and can therefore help you avoid an inheritance tax bill. You may want to set up a trust for your children, grandchildren, or other family members.

How much money can you have in the bank on Social Security? ›

SSA limits the value of resources you own to no more than $2,000. The resource limit for a couple is only slightly more at $3,000. Resources are any assets that can be converted into cash, including bank accounts. However, some assets you own may not affect eligibility for the program.

Do I have to report inheritance to IRS? ›

Regarding your question, “Is inheritance taxable income?” Generally, no, you usually don't include your inheritance in your taxable income. However, if the inheritance is considered income in respect of a decedent, you'll be subject to some taxes.

What happens if you inherit money while on Medicare? ›

Medicare eligibility is based on age, illness and/or disability status rather than income. Inheriting money or receiving any other windfall, such as a lottery payout, does not bar you in any way from receiving Medicare benefits.

What can I do with inheritance money to avoid taxes? ›

How to Avoid the Estate Tax
  1. Give Gifts to Family. One way to get around the estate tax is to hand off portions of your wealth to your family members through gifts. ...
  2. Set Up an Irrevocable Life Insurance Trust. ...
  3. Make Charitable Donations. ...
  4. Establish a Family Limited Partnership. ...
  5. Fund a Qualified Personal Residence Trust.
Mar 31, 2023

Should you leave your children an inheritance? ›

In general, leaving an inheritance to your children is good in that it helps them through life, eases their financial burden, represents your love and care to them, and shows that you did well enough in life financially to be able to leave something to your family.

How long can the IRS go after an estate? ›

Estate Tax Return Statute of Limitations

In general, IRC 6501(a) requires the IRS to assess an estate tax liability within three years after the filing date (or due date, if later) of the estate tax return.

Do kids inherit parents IRS debt? ›

Debts are not directly passed on to heirs in the United States, but if there is any money in your parent's estate, the IRS is the first one getting paid. So, while beneficiaries don't inherit unpaid tax bills, those bills, must be settled before any money is disbursed to beneficiaries from the estate.

Do children inherit debt? ›

A deceased person's debt doesn't die with them but often passes to their estate. Certain types of debt, such as individual credit card debt, can't be inherited. However, shared debt will likely still need to be paid by a surviving debtholder.

Are beneficiaries responsible for debts left by the deceased? ›

Generally, the deceased person's estate is responsible for paying any unpaid debts. When a person dies, their assets pass to their estate. If there is no money or property left, then the debt generally will not be paid. Generally, no one else is required to pay the debts of someone who died.

What assets are not part of an estate? ›

6 types of non probate assets
  • Property. Most personal property, such as real estate, jewelry, or furniture will become probate assets by default. ...
  • Bank accounts. ...
  • Retirement benefits. ...
  • Life insurance policies. ...
  • Any other assets that are owned jointly with others. ...
  • Any other assets that have post-death designation in place.

Does the IRS really have a fresh start program? ›

The Fresh Start program is open to any taxpayer who owes taxes and is struggling to pay them. There are no income requirements. The first step in applying for the IRS Fresh Start program is to contact your tax attorneys or accountants and see if you qualify.

What is the 10 year rule IRS? ›

All distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries. See 10-year rule, later, for more information.

Can you deposit $100000 cash in bank? ›

Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.

How much is considered a large cash deposit? ›

Banks Will Review All Cash Transactions

A series of several smaller amounts that sum to a deposit of more than $10,000 is also treated as a large deposit.

How do I get a $10000 tax refund 2023? ›

  1. Be 18 or older or have a qualifying child.
  2. Have earned income of at least $1.00 and not more than $30,000.
  3. Have a valid Social Security Number or Individual Taxpayer Identification Number (ITIN) for yourself, your spouse, and any qualifying children.
  4. Living in California for more than half of the tax year.
Apr 14, 2023


1. How do I protect my inheritance?
(Retirement Solutions)
2. How To Protect Your Children's Inheritance From Their Divorce
(America's Estate Planning Lawyers)
3. How can I protect my inheritance
(Barnet Wills)
4. How can I protect my inheritance for future generations? | CG Wealth Management UK
(Canaccord Genuity Wealth Management, UK, Channel Islands and Isle of Man)
5. Guard Your Inheritance | Jentezen Franklin
(Jentezen Franklin)
6. Are You Getting Inheritance Money? 4 HUGE $$$ MISTAKES YOU DON'T WANT TO MAKE
(The Resource Center)
Top Articles
Latest Posts
Article information

Author: Edmund Hettinger DC

Last Updated: 05/29/2023

Views: 6526

Rating: 4.8 / 5 (58 voted)

Reviews: 81% of readers found this page helpful

Author information

Name: Edmund Hettinger DC

Birthday: 1994-08-17

Address: 2033 Gerhold Pine, Port Jocelyn, VA 12101-5654

Phone: +8524399971620

Job: Central Manufacturing Supervisor

Hobby: Jogging, Metalworking, Tai chi, Shopping, Puzzles, Rock climbing, Crocheting

Introduction: My name is Edmund Hettinger DC, I am a adventurous, colorful, gifted, determined, precious, open, colorful person who loves writing and wants to share my knowledge and understanding with you.