It’s becoming increasingly common for people in long-term relationships to move in together before getting married. According to a 2019 survey by the Pew Research Center, 7% of surveyed adults were living with an unmarried partner, up from 3% in 1995.
Unfortunately, many state and federal laws haven’t kept up with the times. The law usually doesn’t protect unmarried couples the same way it does married couples when it comes to inheritance, taxes, and decision-making powers.
If you’re living with an unmarried partner, it’s important to consider comprehensive financial and estate planning. Should you pass away without an estate plan, despite your best intentions, your partner could end up with nothing.
The Law Isn’t On Your Side
Without an estate plan, your state’s intestacy laws will determine who receives your money and property. These laws vary by state, but generally, your money and property will first go to your surviving spouse (if you’re married), then to your descendants (children or grandchildren), your parents, your siblings, and your siblings’ children, in that order. Your partner is guaranteed nothing under the law if you didn’t plan for it.
If you have a life insurance policy and didn’t complete the beneficiary designation form, the proceeds from the policy may be paid to your estate. This means that a probate process would be required (the often costly, time-consuming court proceeding that distributes a deceased person’s accounts and property). On the other hand, the proceeds may go to individuals according to the order outlined in the policy agreement. In many cases, the listed people will be your family members, not your partner.
Similarly, if your retirement account does not have a named beneficiary, that account may also end up going through probate. This may cause unintended income tax consequences and distribution according to the default rules of the account agreement.
Spare your partner and family the drama by creating an estate plan.
Complications with “Blended Families”
“Blended families” usually refers to a situation where someone who has children from a previous relationship remarries.
However, if you have children from a previous relationship but are not married to your partner, there could be concern about protecting your partner. Under the law, your children would be more than likely to receive everything, and your partner would receive nothing.
Federal Tax Issues
Married partners who are both US citizens can give each other an unlimited amount of money or property during their lifetime without worrying about the federal gift tax.
However, unmarried partners do not have this luxury. They can only give up to the annual exclusion amount without having to consider the gift tax consequences. The annual exclusion amount for 2021 is $15,000 and is adjusted periodically for inflation. If you wish to give your partner more than the annual exclusion amount, you’ll need to file a federal gift tax return to report the excess. The good news is that federal gift tax isn’t due until you’ve made gifts totalling more than the individual estate and gift tax exclusion amount, which is $11.7 million for 2021.
Federal estate tax rules are similar to the gift tax rules. Married partners are allowed to leave to each other at death an unlimited amount of money and property free of federal estate tax. However, if you and your partner are not married, any money or property you leave to your partner counts towards the $11.7 million lifetime exclusion amount. Once the exclusion amount has been exceeded, an estate tax is due when the giver dies. If your lifetime taxable gifts (those over the annual amount each year) and the amount of money or property transferred at death exceed the lifetime exclusion amount, an estate tax will be due.
Who Do You Trust to Take Care of Your Personal Matters?
The financial aspects of estate planning may be enough to motivate you to plan. But if you need another reason: consider who you want to handle financial or medical decisions for you if you’re unable to do so yourself. If you don’t name a trusted person to handle these financial and medical affairs, the state will appoint someone. Depending on the state, your partner may not be on the list or have a lower priority than your blood relatives. If you have a poor relationship with or don’t trust certain members of your family, this situation can be incredibly messy.
What Actions to Take Now
If protecting your partner is important to you, here’s a few things you can do to get started:
Review your beneficiary designations. These must be filled out correctly to be effective.
Review how your accounts and property are owned. To state the obvious, living together in a house doesn’t mean you both own it. It’s also a good idea to know who has access to the account used for household expenses so one of you can keep paying bills if something happens to the other.
Ask an experienced estate planning attorney to review your documents. Your estate plan should address who will receive your money and property at your death, who will make financial and medical decisions for you if you cannot, and outline your end-of-life wishes.
We’re Here to Help
If this feels overwhelming, don’t worry. Our team of experienced attorneys will be your partner and guide when it comes to protecting yours and your partner’s future.
Call Santaella Legal Group, serving San Ramon, Danville, Dublin, Pleasanton & the Tri-Valley area at (925) 831-4840.