Estate Planning Considerations for Unmarried Couples: From Domestic Partnership to Tax Planning

Oct 2, 2023 10:02:00 AM



By Nicole Ramos Takemoto, JD

In a society that increasingly embraces diverse relationships, unmarried couples are a significant and growing demographic. As legal professionals, we understand that the legal rights and protections afforded to unmarried couples differ significantly from those granted to married couples. This article explores three interconnected topics within estate planning for unmarried couples: the impact of becoming registered domestic partners, tax considerations, and the importance of comprehensive estate planning. By understanding these issues and taking proactive steps, unmarried couples can protect their rights, minimize tax liabilities, and ensure that their wishes are upheld.

1. The Power of Domestic Partnership Registration 

In many jurisdictions, registering as domestic partners establishes a legal framework that recognizes the partnership and provides important rights and protections. It allows partners to inherit from each other in the absence of a will, ensuring that assets are passed on according to their wishes. Domestic partnership registration may also grant decision-making authority in healthcare and financial matters, providing peace of mind for both partners. Registered domestic partners generally have rights to medical coverage, sick leave, and disability benefits under employee benefit plans.

However, it is essential for unmarried couples to understand the specific laws and regulations governing domestic partnerships in their jurisdiction. The rights and benefits granted to registered domestic partners can vary significantly from one place to another. Therefore, consulting with an attorney experienced in family law and estate planning is critical to ensure a clear understanding of the legal implications and the steps required to comprehensively protect the partners’ interests.

It is also important to note that registered domestic partners are not treated as spouses for federal tax purposes. Registered domestic partners may not indicate their filing status as either “married filing separately” or “married filing jointly” when filing a federal tax return. For some couples, remaining unmarried results in a tax advantage. In that case, registering as domestic partners would protect the tax advantage while allowing the partners to enjoy the enhanced rights and protections described above.

2. Tax Considerations for Unmarried Couples

A so-called marriage tax penalty can occur when a married couple incurs a higher tax rate when filing jointly than they would if they were each filing separately as unmarried individuals. This penalty can arise because state and federal tax brackets do not always double the single-income rates for married couples filing jointly. This occurs especially with moderate- to high-income earners when both members of the couple are making similar amounts of money. 

There are also marriage tax penalties beyond the potential tax bracket disadvantages. One example is the federal mortgage interest deduction. For mortgages secured after December 15, 2017, a single taxpayer is entitled to deduct interest on a qualifying mortgage of up to $750,000. A married couple, whether filing jointly or separately, is also entitled to deduct interest on a qualifying mortgage of up to $750,000. However, if two unmarried individuals buy a home together and share the purchase money mortgage, they can each deduct interest of up to $750,000, effectively doubling their mortgage interest deduction to $1.5 million. 

Marriage tax penalties are not limited to high-income taxpayers. For example, a marriage penalty arises for low-income taxpayers who are receiving Social Security benefits. Social Security receipts are not taxed at all to a low-income taxpayer if their income stays below a certain level. But if that taxpayer marries and must combine their income with their spouse’s income, the couple’s aggregate income might exceed the threshold amount, causing the Social Security recipient to owe taxes on their Social Security benefits.

3. The Importance of Comprehensive Estate Planning 

Unmarried couples should engage in thorough estate planning to avoid unexpected legal challenges and ensure that their intentions are upheld. Comprehensive estate planning provides a roadmap for the distribution of assets, protection of beneficiaries, and the realization of personal wishes. Here are some key components to consider.

Wills and Trusts

Creating a will is essential for each member of an unmarried couple to ensure that their assets are distributed according to their wishes. If a person dies without a will or trust, state intestacy laws will dictate who inherits the decedent’s property. Generally, only spouses and blood relatives inherit under intestate succession rules; unmarried partners get nothing. Thus, it is important for unmarried partners to execute estate planning documents to provide for each other upon death.

In addition, unmarried partners may want to designate each other as the personal representative of their respective estates through . . . 

Continue reading the full article by becoming a subscriber to the WealthCounsel Quarterly digital magazine for free! The full article discusses financial powers of attorney, beneficiary designations, cohabitation agreements, and more!

Subscribe To Read

Already a WealthCounsel member? Click here to access the full article. 

Post a Comment

  • There are no suggestions because the search field is empty.