When the topic of unmarried partners is discussed, I think of Bob Dylan’s song, The Times They Are a Changin’. Gone are the days of meeting and courting your sweetheart, marrying and remaining in that union until death do us part. Finding love at any time in your life is a blessing, and more people of all ages are entering long-term, committed relationships without getting married.
Just as clients who are in later-in-life marriages want to protect their families, when you are not married there is certain planning to be done so as to protect your partner.
Unfortunately, state and federal laws do not protect unmarried couples as they do married couples when it comes to inheritance, taxes, and decision-making powers. I know you want to take care of each other.
Without proper planning, your partner could end up with nothing should you pass away, and vice versa.
The Law Is Not on Your Side
If you do no estate planning, Illinois statute determines who will receive your money and property, as well as the amount each legal heir will receive. The spouse receives half the property and the children split the remaining half. If you are survived by no one, your estate is left to the state of Illinois. If you had intended to provide something to your partner but failed to plan before your death, your partner will receive nothing under the law; in fact, unmarried partners are not mentioned at all in such statutes.
If you have a life insurance policy and fail to complete the beneficiary designation form, the proceeds from the policy may be paid to your estate, requiring a costly and time-consuming probate process. You’ve heard me say many times to avoid probate when possible. This court-supervised procedure takes place to distribute to your loved ones the accounts and property you own at your death. Alternatively, the proceeds may go to individuals according to the order outlined in the policy agreement. In many cases, the listed people will be your family members, not your partner. Similarly, if your retirement account does not have a named beneficiary, that account may also end up going through probate, which may cause unintended income tax consequences and distribution according to the default rules of the account agreement.
A Different Kind of “Blended Family” Concern
In most cases, when we refer to blended families, we mean someone who remarries and has children from a previous relationship. In that instance, the planning objective is to make sure that the children from the previous relationship are not completely disinherited because, in many situations, the new spouse’s claim to the deceased’s money and property has priority. However, if you have children from a previous relationship but are not married to your partner, the concern becomes protecting your partner who, under the law, would not be entitled to anything because your children would most likely receive everything.
Federal Tax Issues
When both married partners are US citizens, each can give the other an unlimited amount of money or property during their lifetime without having to worry about the federal gift tax. Unmarried partners who are both US citizens are not afforded the same consideration. Therefore, you can give only up to the annual exclusion amount to your partner without having to consider the gift tax consequences. The annual exclusion amount for 2021 is $15,000 and is adjusted periodically for inflation. Should you decide to give your partner more than the annual exclusion amount in a year, you will need to file a federal gift tax return to report the excess. On the bright side, federal gift tax is not due until you have made gifts totaling more than the individual estate and gift tax exclusion amount, which is $11.7 million for 2021.
Federal estate tax rules are similar to the gift tax rules. Married partners are allowed to leave to each other at death an unlimited amount of money and property free of federal estate tax. However, if you and your partner are not married, any money or property you leave to your partner at death counts towards the $11.7 million lifetime exclusion amount. If your lifetime taxable gifts (those over the annual amount each year) and the amount of money or property transferred at death exceed the lifetime exclusion amount, an estate tax will be due.
Personal Matters
The financial aspects of estate planning mentioned above may be enough to motivate you to plan. But, there are also important personal matters to consider, including who will handle financial transactions on your behalf and who will communicate or make medical decisions on your behalf if you are unable. Recall the Powers of Attorney I frequently talk about? If you do not name trusted individuals to handle your financial and medical affairs, the state will apply its own order of priority and appoint someone. Your partner may not be on the list or may have a lower priority than your blood relatives. This situation can be incredibly messy if your relationship with your family is poor or you would not otherwise trust them to make decisions for you.
Later in this same newsletter issue, I share more about the Wills of the Rich & Famous, who planned well for their partners, who did not, and other cautionary tales.
Actions to Take Now
If protecting your partner is important to you, here are a few things you can do today to get started.
- Review your beneficiary designations. Remember, they must be filled out correctly to be effective.
- Review how your accounts and property are owned. Living together in your house does not mean you both own it. In addition, it is important to know who has access to the account used for household expenses so the healthy partner can continue paying the bills if one of you becomes incapacitated or passes away.
- Memorialize your wishes. Even if you already have an estate plan, it is important to review your documents to make sure they still meet your needs. A comprehensive estate plan should address who will receive your money and property at death, who will make financial and medical decisions for you if you cannot, and outline your end-of-life wishes.
Kerlin Walsh Law is here to help you protect yourself and your loved ones. If you don’t get help from me, get help from a competent, experienced estate planning attorney. Schedule a virtual or in-person consultation or to review your existing estate plan. Email Eileen@KerlinWalshLaw.com or call 708-448-5169.
