Planning for an unwed or same sex couple is not the same as planning for two singles.
And under most laws in the United States, a “civil union” is not the same as marriage.
Married couples enjoy several benefits that are not available to unwed couples:
- The ability to file joint income tax returns
- The ability to receive survivor’s Social Security benefits
- The protection of state spousal inheritance protections
- The ability to receive employer insurance benefits, wages, or retirement plan benefits as a surviving spouse
- The ability to receive alimony in a divorce situation
In addition to the above, there are certain challenges that pertain specifically to estate planning.
- The unlimited marital deduction does not apply. The unlimited marital deduction allows a spouse to pass on any amount of wealth to the other, without paying gift or estate taxes. An unmarried couple would be subject to both types of transfer taxes.
- In the event of a mental disability, with no health care power of attorney or other medical directive in place, a judge will typically appoint the next of kin to make health care decisions for the disabled partner. This can create problems, especially if the relatives do not approve of the partner or the disabled person’s lifestyle.
- To die without any estate plan in place, is said to be dying “intestate.” If one of the partners dies intestate, state law (not the other partner) determines what happens to the deceased partner’s assets. In most states, such assets would pass first to a spouse and/or children. In this case, when there is neither, intestacy laws typically will designate the deceased’s parents and then siblings, followed ultimately by more distant relatives. But since the partner is not related by blood or marriage, they would be left out of the distribution altogether.
In spite of these challenges, there are still techniques that the unwed or same sex couple can use to create a workable estate plan. Some options include:
- One partner names the other as the beneficiary of bank and brokerage accounts by making them a “payable on death” recipient. Of course that type of arrangement comes without any type of asset protection.
- Title all bank and brokerage accounts jointly. However, that could lead to gift and/or estate tax liability. There could also be serious complications if the couple breaks up. Name the partner as the beneficiary of a life insurance policy. Of course, if that policy is owned by an irrevocable life insurance trust, it will keep the insurance proceeds out of the deceased’s estate.
- One final alternative is for the partners to enter into a contractual arrangement – often called “cohabitation agreements.” The agreement can be very broad, including such things as: financial responsibilities of each partner during the relationship; how existing individual debts will be handled; ownership of a residence; the right to make emergency medical decisions for the other during disability; designating outcomes for minor children in the event of a partner’s death; and the ultimate distribution of assets.