Estate Planning‎ > ‎Redflags‎ > ‎

Unmarried Couples Planning

Unmarried Couples Planning
  • Intestate laws favor decedent life partner's blood line and  life time partner
  • Tax free roll-over of retirement plan not allowed because no unlimited marital deduction
  • Until 2010 President's Executive Order, lacked hospital visitation right of unhealthy life partner

Virginia or Maryland do not provide unmarried couples the same rights as married couples [DC does]. 

41 states prohibit same-sex marriage of which 30 states's bans are contained within their state constitution. 

1996 federal Defense of Marriage Act ("DOMA") does not require one state to recognize another state's law regarding unmarried couples.There are 36 states DOMA.

Ways Pass Wealth to Unrelated Person                              Non-Probate Assets, Title, Revocable Trusts

  • Life insurance, annuities and retirement plans which pass wealth by beneficiary designation
  • Joint ownership with right of survivorship
  • Revocable trusts transfers
  • Inherited IRAs can be stretched to beneficiary's lifetime

Understanding the Federal Estate Tax

On January 1, 2011, the estate tax exemption (which was $3.5 million in 2009) becomes $1 million, and the top estate tax rate (which was 45 percent in 2009) becomes 55 percent. 

Federal estate tax law provides an unlimited marital deduction. Assets left to a US citizen surviving spouse pass estate and gift tax free. 

Irrespective of state laws permitting same sex marriages, unmarried couples do not have the UMD. see  the Defense of Marriage Act (DOMA),subject to judicial challenge.

Unmarried couples whose net worth is larger than the estate tax exemption incur federal estate taxation with the death of the first life partner.

Tax-Saving Techniques 

$13,000 Annual gift tax exclusion
  • Permits tax free gifts of up to $13,000 per done, per year [indexed to inflation] and no limit on the number of donees; relationships of donee to the donor irrelevant
  • Excluded gifts do not burn donor's $1 million lifetime gift tax exemption
  • No gift tax return (Form 709) to file. 
   Direct Payment Tuition, Medical Expenses
  • Unlimited direct payments of 3rd Party donee's tuition or medical bills are not subject to gift tax, nor do they count towards the donor's $1 million lifetime gift tax exemption, or to the $13,000 annual gift tax exclusion
  • Gifts must be paid directly to a qualified educational institution or medical provider. 
  • Education costs do not include room and board, books, or supplies. Medical costs do not include amounts reimbursed by insurance companies. 
The gift tax annual exclusion and the exclusion for tuition and medical costs allow the wealthier partner to transfer assets to the less wealthy partner during his or her lifetime. 

Lifetime Gift Tax Exemption

In addition to the annual gift tax exclusion, a donor can gift a cumulative total of up to $1 million to anyone during his or her lifetime, without any gift tax. 
  • "Lifetime gift tax exemption" reduces dollar for dollar, the estate tax exemption--but income and appreciation removed from don't estate
Unmarried couple can use the wealthier partner's gift tax exemption to make gifts to the less wealthy partner so that the overall estate tax of both partners is reduced. 

Gifts to Irrevocable Trusts
  • Donor retains control of distribution provisions in event of unmarried couple separate or death of either
  • Trust Income and principle [health, education and welfare] to life partner
  • Remainder passes estate tax free.
  • Grantor cannot be trustee or beneficiary
  • Grantor can retain right to right to remove and replace trustees
  • Grantor's gifts qualify annual gift tax exemption with use of Crummey rights [limited right beneficiary to withdraw part of gifts]
  • Trust may own life insurance and gifts pay premiums