In 2019, the Pew Research Center conducted a survey and learned 7% of the surveyed adults were cohabitating with a partner they were not married to. In 1995, this percentage was only 3%. More and more people are forgoing traditional marriage, but state and federal laws concerning taxes, inheritance and others are not designed for these long-term, non-martial relationships.
If you’re in such a relationship, it’s imperative to properly plan out your estate and finances. Without it, your partner may not end up with anything you intended to leave behind for them.
Protect Your Loved Ones
States passed intestacy statutes to determine who inherits your property and money after your death. These laws vary from one state to the next, but, in most cases, your surviving spouse (if married) will receive this first and then any descendants, parents, siblings, nieces and nephews. If you’re not married without an estate plan, your partner gets nothing because of how the laws are currently written.
Any surviving member of your family will receive the inheritance.
Life Insurance and Retirement Accounts
A life insurance policy with no beneficiary designated form means the policy proceeds go to the estate. And this means going through the expensive probate process. This is where the court decides how the accounts are distributed to your heirs upon your death. However, the policy proceeds could go to individuals noted in the policy agreement – in most cases; these are your family members and not a partner.
A retirement account with no listed beneficiary also goes into probate, and this could lead to tax consequences and distribution based on the account’s default rules.
What Is A Blended Family?
Blended families involve a remarriage where there are children of previous marriages. If you have a blended family, you need to make sure that the children of a previous relationship are not deprived of their inheritance. The new spouse becomes the claimant of your assets (property and money) and has the authority to determine who gets what.
If you and your partner are not married and there are children from another relationship, then the concern is protecting the partner and ensuring they get the assets you want them to have. According to the law, the children will inherit everything, leaving your partner out.
Federal Tax Consequences
A federal gift tax does not apply to married couples who are both U.S. citizens, no matter how much money or property is gifted. This is not the same for unwed couples. Unwed couples are subjected to a federal gift tax if anything more than $15,000 is given (for the 2021 year). If you gift more than $15,000 to your partner, you must report the amount on a federal gift tax return.
On a positive note, this tax isn’t due until the gifts total exceeds the gift tax exclusion amount and individual estate. For 2021, this is $11.7 million.
Federal estate tax rules have rules similar to the gift tax. Married couples can leave unlimited property and money without worrying about the federal estate tax. Unwed partners leaving each other property or money are subjected to the lifetime exclusion amount of $11.7 million. If the amount surpasses the exclusion amount, an estate tax is attached when the giver passes away.
An estate tax is due when the lifetime taxable gifts exceed the amount every year or the amount being transferred after your death surpasses this lifetime exclusion amount. Speak with an experienced Tax Attorney today.
It’s not just the financial aspects you should be concerned with; it’s also designating a person responsible for carrying out your wishes – whether you become incapacitated or die. Without a named individual, the state will take control and tap someone to handle your matters. Your partner may not even be remotely considered, depending on what your state’s laws read.
It could get ugly real fast if you don’t have a good relationship with your family and don’t feel they are the best people who would carry out your wishes.
What You Need To Do Right Now!
If you want to protect your partner, there are three things you must do right now:
- Ensure your beneficiary designations are correctly filled out.
- Look over your accounts and property. If you live together, you both should own the home. You want to know who has access to the accounts used for household expenses so the bills can still be paid after your death or should be become incapacitated.
- Reach out to an experienced law firm to review your estate plan or draw one up, so your needs are met. You want to make sure that your property and money go to the people you want it to when you die and who will make those medical and financial decisions if you cannot make them yourself.
How We Can Help…
If you want to protect your partner from unscrupulous family members or the government, you need to reach out to an experienced law firm to help you develop an estate plan. If you already have an estate plan, it may be time to redo it and take into consideration your partner. Call us today to get the ball rolling!