Unmarried couples must engage in estate planning because, without proper planning, their partner may be left with nothing when the first partner dies. Details of protecting partners are explained in a recent article, “BUSINESS: Unmarried Couples and Estate Planning,” from The Item.
For married couples, the spouse is usually the first to inherit, followed by children, parents, siblings, and other relatives, depending on who is still living. However, if you’re unmarried and no plans have been made, your partner receives nothing. In fact, in many states, the law doesn’t recognize unmarried couples at all.
Life insurance policies and retirement accounts could go to your estate if no designated beneficiary is named. This could lead to probate, a complicated and costly legal process where the court decides how assets should be distributed.
To avoid these and many other problems, having an estate plan to take care of your partner is best. This includes making a Will, naming beneficiaries for life insurance and retirement accounts and clearly stating your intentions in legally enforceable documents. This protects your partner’s rights and ensures your assets are distributed according to your wishes.
Married partners have the advantage of gifts, as they can give each other unlimited amounts of money or property without worrying about gift tax. However, there are limits to how much unmarried partners may give without facing gift tax exclusions, also known as the annual exclusion.
If you gift your partner more than the annual exclusion amount in a year, you must file a federal gift tax return and report the excess amount. The rules for federal estate tax are quite similar to the gift tax rules.
When married people die, they may leave an unlimited amount of money and property to each other without worrying about federal estate tax. However, any money or property left to an unmarried partner will count towards your lifetime exclusion amount.
Once this exclusion amount is exceeded, an estate tax will be due when the giver passes away. In 2023, the lifetime gift and estate tax exemption is $12.92 million, and the annual exclusion is $17,000. This amount will change over time because of inflation.
There are also personal matters to think about. You’ll want to designate someone to handle financial and legal transactions and make medical decisions on your behalf if you cannot do so. If you don’t choose a trusted person for these roles and have the appropriate documents created, your partner may not be included in these decisions. If you don’t have a good relationship with your family, this could create a situation where your partner is shunted aside.
What can you do? Meet with an experienced estate planning attorney and create a Will to protect your wishes after you pass. Have a Power of Attorney and Medical Power of Attorney created, so your partner can make decisions on your behalf if you become incapacitated. Doublecheck your beneficiary designations to be sure the person who will receive proceeds from your life insurance and retirement accounts is the person you want. If you own a home together, talk with your estate planning attorney to plan for what will happen if one of you needs long-term care or predeceases the other.
Reference: The Item (Aug. 26, 2023) “BUSINESS: Unmarried Couples and Estate Planning”