The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
Unmarried couples don’t receive the same legal protections as married couples when it comes to inheritance and taxes. That’s why it’s crucial for unmarried couples to engage in financial and estate planning. Without proper planning, their partner may not receive anything if they pass away.
Here are several reasons why you should consider a comprehensive estate plan if you are living with an unmarried partner.
Intestacy Law Problem
If you’re married, your spouse will usually be the first to inherit, followed by your children, parents, siblings, and other relatives, depending on who is still alive. In Texas, this is dependent on other factors as well. But if you’re not married and you haven’t made any plans, your partner won’t receive anything under these laws. In fact, the laws don’t even recognize unmarried partners.
Life insurance policies and retirement accounts can also end up going to your estate if there are no designated beneficiary. This can lead to a complicated and expensive legal process called probate, where a court decides how your assets should be distributed.
Furthermore, these situations can have unintended tax consequences and your assets might be distributed according to the default rules of the account, which may not match your wishes and benefit your partner.
To avoid these problems and make sure your partner is taken care of, it’s essential to create an estate plan. This includes making a Will, choosing beneficiaries for your life insurance and retirement accounts, and clearly stating your intentions. By doing these things, you can protect your partner’s rights and ensure that your assets are divided according to your wishes.
Federal Tax Issues
When it comes to giving gifts, married partners have an advantage because they can give each other unlimited amounts of money or property without worrying about gift tax. However, if you’re in an unmarried partnership, there are limits to how much you can give without facing gift tax consequences, known as the annual exclusion.
If you decide to give your partner more than the annual exclusion amount in a single year, you’ll need to file a federal gift tax return and report the excess amount. The rules for federal estate tax are quite similar to the gift tax rules. When married partners pass away, they can leave an unlimited amount of money and property to each other without worrying about federal estate tax. However, if you and your partner are not married, any money or property you leave to your partner will count towards your lifetime exclusion amount. Once this exclusion amount is exceeded, an estate tax will be due when the giver passes away.
In 2023, the lifetime gift and estate tax exemption is $12.06 million and the annual exclusion is at $16,000. Remember that this amount can change over time due to inflation.
Personal Concerns
While the financial aspects of estate planning are important, there are also personal matters to think about. These include designating someone to handle your financial transactions and make medical decisions on your behalf if you become unable to do so.
If you don’t choose trusted individuals for these roles, the state will step in and appoint someone based on their own set of priorities. Unfortunately, depending on the state’s laws, your partner may not be included or may have a lower priority compared to your blood relatives. This can lead to complications, especially if you have a strained relationship with your family or don’t trust them to make decisions for you. It’s crucial to address these matters in your estate plan to ensure your wishes are honored and the right people are in charge of your affairs.
There are a couple of things that you can do today to ensure that your partner is well protected. Double-check that your beneficiary designations are filled out correctly. This is important to ensure that your assets go to your partner as intended. Review the ownership of your properties and accounts. Simply living together in a house doesn’t automatically mean both partners own it. It’s crucial to understand who owns what and ensure that both partners have access to necessary accounts. This way, if one partner becomes incapacitated or passes away, the other can continue managing household expenses.
Finally, you should sit down with an attorney experienced in estate planning to assist you in making sure all the details are followed. We have the experience and would be glad to help you in this regard.
Sam A. Moak is an attorney with the Huntsville law firm of MOAK & MOAK, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas and is a Member of the State Bar College. www.moakandmoak.com
