Special Circumstances - Non-traditional families
Unmarried couples who live together do not enjoy the same legal and financial rights as married couples, regardless of how long they have been together. For that reason, it is essential non-traditional families plan carefully and be aware of the unique issues facing them. These issues apply whether it is an opposite-sex or same-sex couple.
Issues to consider
- Taxes - Unmarried couples are not permitted to file a joint income tax return. This can be an advantage for unmarried couples as they are not subject to the so-called marriage penalty that typically taxes married couples more than if they could use single filing status.
- Gift taxes - The unlimited marital deduction is available only to married couples. Gifts to anyone else in excess of the annual gift tax exclusion and lifetime unified credit are subject to gift tax.
- Estate taxes - Again, the unlimited marital deduction with respect to the federal estate tax is available only to married couples.
- Estate planning - Unlike married couples, partners in a nontraditional relationship are not entitled to inherit anything from one another if there is no properly drafted will. Instead, blood relatives would receive the deceased partner's property.
There are a number of steps unmarried couples can take to ensure their wishes are followed in the event of death or incapacity:
- Titling of property - Joint tenancy with right of survivorship (JTWROS) and pay on death (POD) and transfer on death (TOD) forms of ownership ensure property passes to the surviving partner without going through the probate process.
- Beneficiary designations - Nontraditional couples should review designations on retirement accounts and life insurance policies to ensure those assets pass to whom they wish.
- Durable power of attorney - An important step for unmarried couples. In the event of incapacity, allows partner to act on the other partner's behalf in legal, financial, business and other matters. Powers of attorney can be general or limited.
- Health care proxy - Allows one partner to make medical decision on behalf of the other in the event of incapacity.
- Retirement planning - Unmarried partners can name one another as primary beneficiaries on self-directed retirement accounts such as IRAs, 401(k) and 403(b) plans and annuities.
- Defined benefit pensions -These traditional pension plans in many cases do not allow an unmarried employee to name a nonspouse as beneficiary. In such a case, the benefit payment would cease upon the death of the retired employee.
- Social Security - Unmarried couples receive no spousal benefits under Social Security. Married individuals may receive a benefit based on their own earnings record or on their spouses', depending on which is larger. Unmarried individuals must rely on their own earnings record.
- Insurance - Unmarried couples may qualify for domestic partner benefits offered by many employers. They should also consider a variety of insurance types, including joint property, renters, long-term care and disability.