Received an Inheritance While Married? What to Do Next

When one spouse inherits money, property, or retirement accounts, a handful of decisions made in the weeks and months after receiving the inheritance determine whether it stays protected as separate property — and how much of it survives the tax consequences. This guide covers what most people get wrong, the couples-specific planning opportunities, and when to involve a financial advisor before the decisions become irreversible.

Is an inheritance marital property?

In the vast majority of states — and for most marriages — the answer is no. An inheritance received by one spouse during marriage is that spouse's separate property, not jointly owned marital property. This is the rule under common-law property doctrine, which governs 41 states and Washington, D.C.¹

The nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, and Alaska as an opt-in state) follow the same basic rule for inheritances: assets inherited by one spouse during marriage remain that spouse's separate property, not community property, even in community property jurisdictions.¹

So why does this question come up so often? Because that separate-property status is not permanent. It can be lost — inadvertently, in ways people don't notice until they're in divorce proceedings.

How inheritance loses its separate-property status: commingling

The most common way an inherited asset becomes marital property is through commingling — mixing the inherited funds or property with marital assets to the point where the original source can no longer be clearly traced.

Actions that commonly trigger commingling

• Depositing inherited cash into a joint checking account used for household expenses. Once it's in the joint account and mixed with paychecks and joint savings, tracing it back to the inheritance becomes difficult or impossible.
• Using inherited money to pay down a joint mortgage principal. The inherited funds are now inside the marital home, which is jointly owned. Courts in many states treat this as a contribution to a marital asset.
• Retitling inherited property into joint names. If you inherit a piece of real estate or a brokerage account and add your spouse as a joint owner, you've made a gift of half the value to your spouse — which may be intentional, but it's permanent and irrevocable.
• Reinvesting inherited assets in a joint brokerage account. Even if the original inherited stock was yours, selling it and purchasing new securities inside a joint taxable account creates a commingling argument.
• Using inherited funds to substantially improve the marital home (in some states). A major renovation funded by your inheritance that adds significant value to a jointly owned property may create a marital-property claim on that value in divorce, depending on state law.

How to protect it

• Open a new, individual account in your name alone. Never add your spouse as a joint owner. Label the account clearly (e.g., "Jane Smith — Estate of Robert Smith"). Keep a copy of the estate distribution letter in the same folder.
• Invest inherited assets in that individual account. If you inherit a brokerage account, transfer it to a new individual account in your name — not into an existing joint account.
• Document the source. Keep the estate distribution paperwork, executor correspondence, and any account transfer records. If you later need to demonstrate the asset is inherited, you'll have a paper trail.
• Don't use inherited funds to pay joint obligations unless you're documenting carefully and are comfortable with the consequences. If you do use inherited money for a joint purpose, keep a contemporaneous record of the amount and date.

None of this is about distrusting your spouse. It's about clarity. If the inheritance is eventually intended to benefit the household — or to pass to children — keeping it clearly separate actually serves that goal better than mixing it immediately.

Inherited non-retirement investments: the step-up in basis

When you inherit stocks, mutual funds, ETFs, or other securities, the cost basis resets to the fair market value on the date of the previous owner's death.² This is called a "step-up in basis," and it's one of the most valuable features of the U.S. tax code for people who receive inheritances.

What it means in practice: suppose your parent bought 500 shares of a stock at $20/share ($10,000 total basis) decades ago. By the time they passed, it was worth $80/share ($40,000). If you sell those shares immediately after inheriting them, you owe zero capital gains tax on the $30,000 of appreciation that occurred during their lifetime. Your new basis is $80/share — the value on the date of death.

The step-up applies to assets in taxable accounts. It does not apply to inherited IRA or 401(k) balances — those are distributed as ordinary income (see next section).

Planning opportunity: review before you reinvest

Before automatically holding inherited investments long-term, consider:

• Diversification. Inherited concentrated positions (e.g., a large block of one stock from a deceased parent's career) carry risk. The stepped-up basis means selling and diversifying now has minimal tax cost — you're essentially starting clean on a tax basis.
• Asset location. Inherited taxable investments are ideal candidates for tax-efficient holdings (index funds, municipal bonds) — you're already holding them in a taxable account, so future dividends and capital gains distributions will be taxable going forward.
• Depreciated assets. If the inherited asset has declined in value since death, you have a built-in capital loss. Selling within the estate-settlement period and realizing that loss can offset other capital gains.

Inherited retirement accounts (IRA, 401k): the tax exposure trap for married couples

If you inherit a traditional IRA or 401(k) from a parent, sibling, or anyone other than your spouse, you are a non-spouse beneficiary. The rules are strict, and the tax consequences can significantly affect your combined household income — and your Medicare premiums — for a decade.

The 10-year rule

Under the SECURE Act and SECURE 2.0, most non-spouse beneficiaries must empty the inherited IRA by December 31 of the tenth year following the owner's death.³ There is no required annual distribution — you can take the entire balance in year 10, nothing in years 1–9, or spread it evenly.

Annual RMDs within the 10 years — when the decedent had already started RMDs

Here's the trap many people miss: if the person you inherited from had already reached their Required Beginning Date — age 73 (born 1951–1959) or 75 (born 1960 or later) — and was already taking required minimum distributions, then under T.D. 10001 (finalized July 2024), you must take annual RMDs from the inherited IRA during the 10-year period, not just clear the balance by year 10.³ Missing an annual RMD triggers a 25% excise tax on the missed amount (reducible to 10% if corrected promptly).

If the decedent had not yet started RMDs — died before their RBD — annual distributions are optional. You can take any amount in any year, as long as the account is empty by December 31 of year 10.

Why this matters for married couples: the IRMAA cliff

Inherited IRA distributions are ordinary income. They count toward your Modified Adjusted Gross Income — including the MAGI that Medicare uses to set Part B and Part D premiums two years later. This is the piece most inheritors don't see coming.

In 2026, the IRMAA surcharge for Medicare Part B begins at $218,000 MAGI for married couples filing jointly.⁴ A household that normally sits comfortably below that — say, $160,000 in combined W-2 and Social Security income — might not account for $50,000 in annual inherited IRA distributions, which would put them at $210,000. Depending on other income, they could be one Roth conversion or one sale of appreciated stock away from their first IRMAA surcharge.

Distribution planning for the 10-year window:

• Spread distributions over 10 years to smooth the income spike. A $500,000 inherited IRA taken evenly is $50,000/year; taken all in year 10, it could create a $500,000 income event that reaches the top IRMAA tiers and the highest marginal tax bracket.
• Coordinate with your spouse's income trajectory. If your spouse is a few years from retirement and their W-2 income will drop, delaying larger distributions to those lower-income years can reduce the tax and IRMAA impact significantly.
• Model the Roth conversion interaction. If you're also doing Roth conversions in the pre-RMD window, inherited IRA distributions and conversions both count toward MAGI. You may need to pause or reduce conversions in years when inherited IRA income is highest.

Inherited IRA from a spouse

If the deceased was your spouse, the rules are more favorable: you can roll the inherited IRA into your own IRA and treat it as if you owned it all along. This resets the RMD clock to your own Required Beginning Date (age 73 or 75) and eliminates the 10-year forced distribution timeline. For full details on surviving spouse inherited IRA decisions, see the Financial Planning for a Surviving Spouse guide.

Inherited real estate

Inherited real estate also receives a step-up in basis to fair market value on the date of death. The tax planning question for married couples is usually which decisions to make about titling, occupancy, and eventual sale.

The $250K vs. $500K home-sale exclusion

Under IRC § 121, the exclusion for capital gains on the sale of a primary residence is $250,000 for a single filer and $500,000 for a married couple filing jointly — but both spouses must meet the ownership and use tests (owned for 2 of the last 5 years, used as primary residence for 2 of the last 5 years).⁵

If you inherit a property solely in your name and convert it to your primary residence, you can meet the ownership and use tests yourself. But since your spouse didn't inherit the property and isn't on title, you'd qualify for the $250,000 exclusion — not the $500,000 joint exclusion.

If you want access to the $500,000 exclusion when you eventually sell, you could retitle the property jointly — but that's a permanent gift of half the value to your spouse and creates a commingling argument for the property's separate-property status. The right answer depends on the property's appreciation potential, how long you plan to hold it, and whether protecting the separate-property status matters to you.

Keep the inherited property in your name if you're protecting it

If there's any chance you'd want the inherited property to pass to your children (from this or a prior marriage) rather than to your spouse, keeping it titled in your name alone is essential. Once you retitle jointly, both spouses have equal rights to it.

Estate tax and the OBBBA exemption

At the federal level, most inheritances carry no estate tax for the inheritor. The estate tax is paid by the decedent's estate (on the total estate value above the exemption threshold), not by beneficiaries who receive distributions from the estate.

Under the One Big Beautiful Bill Act (OBBBA, July 2025), the federal estate and gift tax exemption is permanently set at $15 million per person.⁶ For a married couple, the combined exemption can reach $30 million through the portability election. The previously scheduled sunset of the TCJA's higher exemption is off the table.

For most inheritors, the estate tax question is: did the deceased's total estate exceed $15 million? If not, there is no federal estate tax, and nothing you receive carries a federal estate tax bill. If the estate was large enough to owe federal estate tax, that was settled before you received your distribution.

State-level inheritance and estate taxes are a different matter. About 17 states and Washington, D.C. impose an estate tax, and six states have an inheritance tax (Maryland has both). Several of these states have exemption thresholds well below the federal $15 million — some as low as $1 million. If the decedent lived in a high-estate-tax state or if you live in a state with an inheritance tax, consult a tax professional about your specific exposure.

When one spouse's inheritance creates asymmetric household wealth

Receiving a significant inheritance can shift the financial balance between spouses substantially. This is worth addressing proactively, not because it creates a problem in a healthy marriage, but because ignoring it creates risks that are easy to prevent.

Beneficiary designations need to reflect the new reality

If you inherit a brokerage account or IRA, the beneficiary designation on that account now matters. Make sure the beneficiary designation reflects who you want to inherit it if you die. If you want your children to inherit it, name them — not your spouse, if you want to protect the separate bloodline. If you want your spouse to inherit, name them explicitly.

Estate documents may need updating

A significant inheritance can push your individual estate above levels you planned around. If you're now holding $1–2 million in a separate account that your will or trust doesn't specifically address, updating your documents to reflect the new asset is prudent. This is especially true in states with lower estate tax exemptions.

Gift tax considerations for transfers to your spouse

If you want to share some of the inherited money with your spouse — not just keep it for the household — you can gift up to $19,000 per year gift-tax-free in 2026.⁷ Gifts between U.S. citizen spouses are generally unlimited under the unlimited marital deduction, so you can transfer any amount to a U.S.-citizen spouse without gift tax implications. If your spouse is a non-U.S. citizen, the annual exclusion for spousal gifts is $194,000 in 2026.⁷

For blended families: what separate titling actually protects

If you're in a second marriage and have children from a prior relationship, an inheritance is often intended — consciously or not — to eventually pass to those children rather than to your current spouse's estate. Keeping the inherited assets titled in your name, with your children named as beneficiaries on any accounts, is the mechanism by which that intention actually gets carried out.

Without separate titling and explicit beneficiary designations, inherited assets that aren't addressed in your will or trust can pass to a surviving spouse by default — and may then pass to the surviving spouse's heirs, not your children.

A QTIP trust (Qualified Terminable Interest Property trust) is one estate planning tool that allows you to provide income to a surviving spouse during their lifetime while ensuring the underlying principal eventually passes to your children. If the inherited amount is large and blended-family concerns exist, discussing a QTIP with an estate attorney is worth the conversation.

What a fee-only advisor does with an inheritance

The decisions described in this guide interact in ways that make them hard to optimize in isolation. The question of whether to take inherited IRA distributions evenly or back-loaded depends on your spouse's income trajectory and your Roth conversion plans, which in turn depend on your IRMAA exposure and RMD timeline. The question of whether to keep inherited real estate titled separately depends on the property's appreciation potential and your estate structure.

A fee-only advisor who works with couples handles all of these as an integrated plan — not just the tax return, not just the investment allocation, but the multi-year distribution plan for the inherited IRA, the Roth conversion trade-off, the IRMAA projection, and the estate document audit. There's no commission in it for them to recommend one product. Their interest is entirely in the quality of the plan.

If you've received a significant inheritance and haven't yet spoken with a fee-only advisor, three to six months after receiving it is a good time to start. The immediate pressure is usually low; the high-value decisions are often in the first year or two.

Sources

1. Justia — Inheritances Under Property Division Law. In common-law property states, property inherited by one spouse during marriage is generally that spouse's separate property, not subject to division in divorce absent commingling. Community property states follow the same rule: inheritances received during marriage by one spouse remain separate property. The key exception is commingling — mixing separate property with marital assets so the source can no longer be traced.
2. IRS Publication 551 — Basis of Assets. Inherited property receives a fair market value basis on the date of the decedent's death (or alternate valuation date if elected on the estate return). This "stepped-up" basis eliminates capital gains on pre-death appreciation. The step-up applies to assets held in taxable accounts; inherited IRA and retirement account balances are not subject to step-up — distributions are ordinary income.
3. T.D. 10001 — Final RMD Regulations (July 2024). Non-spouse beneficiaries of traditional IRAs and most 401(k)s must empty the account by December 31 of the tenth year after the owner's death (the "10-year rule" under SECURE Act). When the decedent died after their Required Beginning Date (age 73 for those born 1951–1959; age 75 for those born 1960+), the beneficiary must also take annual RMDs during the 10-year period. Eligible Designated Beneficiaries (surviving spouses, minor children, disabled individuals) have different, more favorable rules.
4. CMS — 2026 Medicare Parts A & B Premiums and Deductibles. IRMAA surcharges for Medicare Part B begin at $218,000 MAGI for married filing jointly (based on 2024 income per 2-year lookback). Single filer threshold is $109,000. Inherited IRA distributions count as ordinary income and are included in MAGI for IRMAA purposes. Couples should model annual inherited IRA distributions against the IRMAA thresholds when planning the 10-year distribution window.
5. IRS Publication 523 — Selling Your Home. IRC § 121 provides a $250,000 capital gains exclusion for single filers and $500,000 for married couples filing jointly on the sale of a primary residence, subject to the 2-of-5-year ownership and use tests. Both spouses must meet the use test; only one must meet the ownership test to qualify for the $500,000 joint exclusion. Inherited property held by one spouse alone that is converted to a primary residence qualifies for the $250,000 single-filer exclusion (or $500,000 if retitled jointly and both spouses meet the tests).
6. IRS — 2026 Tax Inflation Adjustments (OBBBA). The One Big Beautiful Bill Act (July 2025) permanently set the federal estate and gift tax exemption at $15 million per person, eliminating the previously scheduled sunset of the TCJA higher exemption. The gift and estate tax basic exclusion amount for 2026 is $15 million per person; combined married couple exemption of $30 million available via portability election (IRS Form 706).
7. IRS — Frequently Asked Questions on Gift Taxes. The annual gift tax exclusion for 2026 is $19,000 per recipient (per IRS Rev. Proc. 2025-32). Gifts between U.S. citizen spouses qualify for the unlimited marital deduction — no gift tax, no return required. The spousal gift exclusion for non-citizen spouses is $194,000 in 2026. Gifts above the annual exclusion to non-spouse recipients reduce the donor's lifetime exemption and require filing Form 709.

Marital property law per Justia / state common-law and community property doctrine. Step-up in basis per IRS Pub. 551. Inherited IRA 10-year rule and annual RMD requirement per T.D. 10001 (July 2024) and SECURE 2.0. IRMAA thresholds per CMS 2026 announcement. Home-sale exclusion per IRS Pub. 523 and IRC § 121. Estate exemption per OBBBA (July 2025), $15M permanent. Gift exclusion per IRS Rev. Proc. 2025-32. Values verified June 2026.