Any assets which someone inherits through a Will or a Trust, whether those assets are physical items or cash assets, as a general rule, start as separate property. 

If those items or cash assets continue to stay separate property, upon separation they will not form part of the items that would need to be divided under a relationship property division.

If those inherited items or cash assets are mixed with relationship property, then they are likely to then become relationship property. 

For example, if you were to receive a cash payment as part of an entitlement under a Will and you transferred that cash into a joint account owned by you and your spouse or partner, then that cash asset would become relationship property. 

If you transferred that same cash asset into a bank account that you opened before the relationship began (and did not use that account during the relationship) then that asset would remain as separate property.  The same applies if you were to transfer those assets into a Trust that was formed prior to the relationship.

In terms of physical items, if they are inherited then generally they will stay as separate property, even upon division of relationship property.  The exception to this is if this item has been used for the benefit of the relationship. 

For example, if you were to inherit a motor vehicle or a boat from a relative through a Will and you used the motor vehicle or boat for the benefit of your relationship with your spouse or partner, then there is a high chance that motor vehicle or boat would become relationship property. If you inherited a piece of art, and it was never displayed in the home, then it will remain separate property.

One way to obtain certainty around inherited items is to include them as separate property in a contracting out agreement.  This requires a fairly standard clause that is present in most contracting out agreements as most people would agree that inherited items, particularly from grandparents and items that are family heirlooms, should remain as separate property. 

Pre-existing Trusts can also provide some degree of protection around the holding of inherited items.  However care needs to be taken to ensure that your partner or spouse is not added as a beneficiary of the Trust.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.