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    Want to Protect Your Partner? Marriage Isn’t the Only Option

    By Brandon Miller, CFP–

    It’s been three years since the odious Defense of Marriage Act was overturned, finally allowing same-sex couples to legally marry. As great as having the marriage option is, you may be among the many people—LGBTQ and straight—who don’t care to walk down the aisle. Maybe you don’t want marriage to ruin your relationship. Or your domestic situation involves more than the one partner sanctioned by marriage laws. Perhaps you’re both older and don’t want to mix finances. Or you might not be getting married for the sake of your kids.

    Regardless of why wedded bliss isn’t for you, it’s important to recognize that your financial planning issues are more complicated—and often much more important—than for married couples.

    Some workarounds are easy, such as having the wealthier or higher-earning partner pay more household expenses and make all the charity donations. But there are a couple of areas where you might want to review your plans and paperwork if you’re not married or are domestic partners, since the latter doesn’t carry all of the financial benefits of marriage.

    Retirement Planning

    Beneficiary designations. Unmarried partners don’t automatically receive retirement plan benefits like spouses do. So, make sure you specify who you want to inherit your 401(k), pension, IRA and other retirement accounts, and update your beneficiary(s) if circumstances change. This can help to avoid the probate process that may leave your loved one out in the cold in favor of a blood relative.

    Social Security income loss. Non-spouse partners also aren’t eligible for Social Security survivor benefits. Be sure to take that into consideration when projecting your retirement income.

    Inherited IRA restrictions. Spouses can transfer ownership of their spouse’s IRA, allowing them to gain tax advantages by delaying or reducing minimum distributions after the account owner’s death. Unfortunately, unmarried partners don’t receive this benefit and would do well to plan for the resulting tax implications.

    Estate Planning

    Gifting restrictions. Spouses can gift assets to each other with no limits on the amount. Unmarried couples are restricted as to how much they can give each other—currently $14K/year—and will trigger a tax bill if they exceed this amount. You can avoid taxes by structuring the “gift” as a loan or filing a gift tax form that includes the extra amount as part of your lifetime gift exemption amount.

    Estate tax limitations. Non-spouses can’t take advantage of the unlimited marital deduction for estate taxes. If your estate is very large, it might make sense to arrange your finances so that the surviving partner can access enough cash to meet tax payments on the estate.

    Ownership and legal documentation. Many of the legal protections and privileges that spouses enjoy don’t apply to partners who aren’t married. This makes it vital to create and keep up-to-date important documents such as wills, trusts, health-care proxies and directives, power-of-attorney designations and more. For property and other assets that you own with someone else, you may want to ensure that you hold the title in a way that ensures it will be distributed as you wish after the death of an owner.

    Insurance

    Life insurance safety net. Life insurance proceeds can help to provide ready cash for a surviving non-married partner, which can be used to hold onto property or to pay tax bills. And it’s particularly important to have an adequate policy if there’s a large inequality in what each partner earns.

    ILIT workaround. An irrevocable life insurance trust (ILIT) is a great way to compensate for not being able to take advantage of the unlimited marital deduction for estate taxes. Benefits are paid directly to the trust, which shields beneficiaries from income and estate taxes.

    Health insurance considerations. Restrictions on many employer-provided health insurance plans mean non-spouses aren’t eligible for coverage. Your financial plans should make sure everyone has enough health insurance. Also, if the partner who provides health benefits loses his or her job, COBRA benefits only go to qualified beneficiaries, which includes a spouse or former spouse and dependent children. Here again, planning for this contingency can help to avert a financial crisis.

    The point of this article isn’t to convince you to get married, but rather to illustrate how important financial planning is to you and your non-spouse. After all, planning for your partner’s financial future can show more love than any piece of paper from City Hall.

    Brandon Miller, CFP® is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.