Unmarried couples face many of the same estate planning concerns as married couples. However, married couples can use more advantageous estate planning strategies than unmarried couples. Estate planning attorneys Jason Smolen and Dan Ruttenberg say this means unmarried couples must engage in special planning to ensure that their decisions regarding asset distribution and health care are carried out per their wishes.
Strategies unavailable to unmarried couples
Because intestacy laws offer no protection to an unmarried person who wishes to provide for his or her partner, it’s essential for unmarried couples at a minimum to create a will or living trust, says Ruttenberg. Without those arrangements, a partner can find themselves at the mercy of the children or other relatives of the decedent taking the estate assets, even if the couple lived together for many years. But marriage offers several additional estate planning advantages that unmarried couples must plan around, such as:
Marital deduction.
Estate planning for married couples often centers on the marital deduction, which allows one spouse to make unlimited gifts to the other spouse free of gift or estate taxes. Unmarried couples don’t enjoy this advantage; thus, lifetime gift planning is critical so they can make the most of the lifetime gift tax exemption and the $15,000 per recipient annual gift tax exclusion.
“Unmarried couples should also pay close attention to transactions that may inadvertently trigger gift taxes, such as payment of a partner’s living expenses,” says Smolen.
Tenancy by the entirety.
Married and unmarried couples alike often hold real estate or other assets as joint tenants with rights of survivorship. When one owner dies, the title automatically passes to the survivor. In many states, a special form of joint ownership — tenancy by the entirety — is available only to married couples.
In addition to survivorship rights, tenancy by the entirety offers protection against claims by the spouse’s individual creditors. “Unmarried couples who seek greater protection against creditor claims should consider placing assets in a trust,” says Ruttenberg.
Will contests.
Married or not, anyone’s will is subject to challenge as improperly executed, or on grounds of lack of testamentary capacity, undue influence, or fraud. For some unmarried couples, however, family members may be more likely to challenge a will simply because they disapprove of the relationship.
To reduce the risk of such challenges, Ruttenberg suggests unmarried couples should be sure that their wills are carefully worded and properly executed and use separate attorneys, which can help refute charges of undue influence or fraud. In addition, consider including a “no contest” clause, which disinherits anyone who challenges the will and loses. Finally, explain in the will the reasons for favoring one’s partner over relatives.
Health care decisions.
A married person generally can make healthcare decisions on behalf of a spouse who has become incapacitated by illness or injury. Unmarried partners cannot do so without written authorization, such as a medical directive or health care power of attorney. A durable power of attorney for property may also be desirable, allowing a partner to manage the other’s assets during a period of incapacity.
Take advantage of a GRIT
Although married couples enjoy several estate planning advantages over their unmarried counterparts, there are a few situations in which unmarried couples have an edge. For example, with a grantor retained income trust (GRIT), one partner transfers assets to an irrevocable trust for the other’s benefit. By retaining income and certain other interests in the trust, however, the grantor minimizes its value for gift tax purposes.
So long as the grantor survives the trust term, a GRIT has the potential to transfer substantial amounts of wealth tax-free, which led Congress in the late 1980s to eliminate these tax benefits for intrafamily transfers. But Smolen says unmarried couples and other “nonfamily” members can still take advantage of this powerful estate planning strategy.
Planning options are available
There are many reasons life partners decide not to marry. Even though this prevents these couples from using powerful estate planning strategies, there are specific strategies available to achieve estate planning objectives. Contact Jason Smolen at jdsmolen@smolenplevy.com or Dan Ruttenberg at dhruttenberg@smolenplevy.com to help you identify and implement those strategies.
About the Authors
Jason Smolen
Jason Smolen is a founding principal of SmolenPlevy. Smolen’s knowledge of complex estate and business issues has drawn the attention of ABC News, USA Today, E! Online, Realty Times and the Bank of America Small Business Online Community. Mr. Smolen is a graduate of the City College of the City University of New York and the George Mason University School of Law. Smolen also serves as a board member of a local citizens association and recently co-authored an article titled Why You Should Think About Spousal Limited Access Trusts (SLATS).
Daniel H. Ruttenberg
Daniel H. Ruttenberg, JD, CPA, LLM is a principal with the firm. Mr. Ruttenberg received his Bachelor of Science degree with a double major in Accounting and Finance from the University of Maryland. He earned his Juris Doctor with Honors from George Mason University School of Law and his Master of Laws in Taxation with Distinction from Georgetown University Law Center. Mr. Ruttenberg also served as the Director of the Fairfax Bar Association (FBA) for seven years. During this period, he was also elected president – the youngest in FBA history and served as a member of the Board of Directors for the Fairfax Law Foundation.
