|
Investment Planning |
Estate Planning in Non-Traditional Relationships
If you are in a non-traditional relationship, for example a same-sex couple or non-married heterosexuals in a committed relationship, your tax planning options are limited. However, there are important steps you can take before your death or incapacity to provide for the support and care of your loved ones. This tip will identify some important planning ideas to minimize your estate and gift taxes, maximize wealth transferred to your loved ones, and provide for the care of your dependents.
Under the current U.S. tax system, only married couples can take advantage of the unlimited marital deduction, meaning that an unlimited amount of assets can be passed from one spouse to the other in life or at death. In a non-traditional relationship, careful planning must be done to transfer assets from the wealthier partner to the less-wealthy partner in an attempt to equalize estates and to provide for the well-being of the less-wealthy partner.
If you are in a domestic partnership situation, you may want to use the annual gift tax exclusion of $13,000, holding your property in joint tenancy, or a revocable living trust to accomplish some of your estate planning goals.
Liquidity planning while you are alive is the key to transferring assets to a non-spouse partner. If the majority of your net worth is concentrated in non-liquid assets, such as real estate, this planning is especially important to avoid the mandatory sale of your real property just to pay the estate taxes.
Titling property in joint tenancy with rights of survivorship lets an asset pass automatically to the surviving joint tenant. The joint tenancy title, not the will, controls the disposition of the assets. This is a powerful planning tool, but it does have drawbacks, including the fact that not all of your assets may be given this title. For assets in a retirement plan, the beneficiary designation controls. If the assets you own with your partner are titled as tenants in common they will pass through your will, meaning that they go through probate and are then distributed according to the terms of your will. This could be problematic if your will is contested.
For many couples, the partners may earn substantially different income or have accumulated different amounts of wealth. Proper planning will allow the wealthier partner to transfer assets to the less-wealthy one during lifetime, or at death. To transfer assets to anyone who is not your legal spouse, consider these ideas:
- Make annual gifts of $13,000 per year (the gift threshold in 2010 to avoid gift taxes) to the less-wealthy partner.
- Have the wealthier partner make payments for medical treatment or tuition directly to the hospital, doctor, or educational institution providing services to the less-wealthy partner.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.