Estate Planning for Unmarried Couples

Unmarried couples often face a significant problem under federal transfer tax laws, similar to the situation when a U.S. citizen spouse distributes property at death to his or her non-U.S. citizen spouse.

While married individuals can distribute an unlimited amount of assets to a U.S. citizen spouse, without any assets being subject to federal estate tax at the time of his or her death, assets bequeathed to a life partner or non-U.S. citizen spouse do not receive the benefits of the unlimited marital deduction for estate tax purposes. Therefore, special planning is required for clients who live with their life partner, but are not married.

If you work with clients whose estate plans provide for transfer of their personal assets or real estate to someone they live with, but are not legally married to, the liberal marital deduction rules for married couples do not apply. More specifically, if the total value of property distributing from an individual to his or her surviving life partner is greater than the estate tax exemption amount in effect in the year of death, then a significant federal estate tax liability may be due within nine (9) months after death of the first life partner.

In essence, many unmarried couples face much more difficult and challenging transfer tax issues, compared to married couples. For this reason, unmarried couples should consult with their financial advisor, along with an estate planning attorney who is very knowledgeable with both the practical aspects and tax rules impacting estate plans for unmarried couples.

Same-sex couples also encounter very similar estate planning concerns, even if they are legally married under the laws in the state where they reside and own property. While they may live in states that allow them to marry or have civil unions, in which they are treated the same as married couples for tax purposes, such laws only apply to state taxes. The federal government does not currently recognize same-sex marriages or civil unions for the purposes of federal taxes. Therefore, now that federal estate tax has returned, all unmarried couples need to take extra care in the design and implementation of their estate plan.

Wills, Trusts, and other important estate planning legal documents should only be prepared by a licensed estate planning attorney. To arrange an “Estate Planning Check-up” with your selected clients, contact Shari at The Levin Law Firm to schedule a Complimentary Consultation at 610-977-2443.