For unmarried couples, making a will is paramount, especially if they are sharing a home owned by just one member of the couple. If the homeowner dies without an estate plan, the other member of the couple could be out on the street. For partners who want to leave their homes to their children, one way to deal with this problem is to create a life estate for the surviving partner. This contract typically gives the survivor the right to live in the home until he or she dies or moves into a nursing home, at which time the house passes on to children or other heirs.
Although some couples remain unmarried to protect their estates, that strategy backfires if you end up paying estate taxes, according to a recent article in Kiplinger’s Personal Finance, titled “Retirement: Estate planning for unmarried couples.”However, if you’re married, you’re able to inherit an unlimited amount of assets from your spouse—without paying any state or federal estate taxes. In addition, you’re permitted to give an unlimited amount of assets to your spouse while you’re alive without filing a gift-tax return.
This exemption doesn’t extend to unmarried couples. Estates of up to $5.43 million are exempt from federal estate taxes. Some states, however, have lower thresholds for their estate or inheritance taxes.
The article explains that the tax code is also kinder to married couples as far as inherited IRAs. A spouse who inherits an IRA is allowed to roll the account into his or her own IRA, and a surviving spouse can delay taking required minimum distributions until age 70½. As he or she waits to take the RMD, the account will continue to grow tax-deferred. A spouses can also roll an inherited Roth IRA into their own Roth, and they’re not required to take RMDs.
Not so for unmarried partners.
An unmarried partner who is named as an IRA beneficiary can roll the account into an inherited IRA and take distributions based on his or her life expectancy.
Questions about estate taxes can be answered thoroughly by an experienced estate planning attorney. Talk to him or her to devise the best strategy for your specific situation.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: Kiplinger’s Personal Finance (April 12, 2015) “Retirement: Estate planning for unmarried couples”