Key Takeaways
- No unlimited marital deduction available
- Beneficiary designations critical for asset transfer
- Healthcare proxy and POA essential without spousal rights
- Joint ownership may create gift tax issues
Estate Planning for Unmarried Couples
The number of unmarried partners in the United States has grown significantly, with cohabitation becoming increasingly common across all age groups. Unlike married couples who benefit from numerous legal protections and tax advantages, unmarried couples face unique challenges that require proactive and comprehensive estate planning. Without proper planning, an unmarried partner may have no legal rights to make medical decisions, inherit property, or even visit their partner in the hospital.
Critical Differences: Married vs. Unmarried Couples
| Planning Area | Married Couples | Unmarried Couples |
|---|---|---|
| Estate Tax Marital Deduction | Unlimited transfers between spouses tax-free | No marital deduction; transfers subject to gift/estate tax limits |
| Portability | Unused estate tax exemption transfers to surviving spouse | No portability; each partner's exemption is "use it or lose it" |
| Intestacy Rights | Surviving spouse inherits under state law | Partner receives nothing; assets pass to blood relatives |
| Healthcare Decisions | Automatic spousal authority in most states | No legal authority without healthcare proxy |
| Hospital Visitation | Presumed right of access | May be denied as non-family member |
| Social Security | Survivor benefits available | No survivor benefits regardless of relationship length |
| Retirement Account Rights | Spousal rollover options available | Limited to 10-year distribution rule (SECURE Act) |
Key Estate Tax Implications
No Unlimited Marital Deduction
Married couples can transfer unlimited assets to each other without triggering gift or estate taxes. Unmarried couples cannot access this benefit. Each transfer between partners is subject to:
- Annual Gift Tax Exclusion (2025): $19,000 per recipient
- Lifetime Gift/Estate Tax Exemption (2025): $13.99 million per individual
- Estate Tax Rate: 40% on amounts exceeding the exemption
Important 2026 Change: The lifetime exemption is scheduled to increase to approximately $15 million per individual under recent legislation, but this remains subject to future congressional action.
No Portability of Estate Tax Exemption
When a married person dies, any unused portion of their estate tax exemption can transfer to the surviving spouse (portability). Unmarried partners cannot use portability, meaning:
- Each partner must fully utilize their own exemption
- Careful planning is required to avoid "wasting" either partner's exemption
- Credit shelter trusts may be beneficial for high-net-worth unmarried couples
Essential Documents for Unmarried Partners
1. Will (Absolutely Critical)
Without a will, intestacy laws determine asset distribution. In every state, intestacy laws prioritize blood relatives over unmarried partners:
- Typical Intestacy Order: Spouse, children, parents, siblings, more distant relatives
- Unmarried Partners: Receive nothing regardless of relationship duration or intent
A will allows partners to:
- Name each other as beneficiaries
- Designate specific asset distributions
- Nominate an executor
- Include no-contest clauses to discourage family challenges
2. Healthcare Proxy (Medical Power of Attorney)
Grants your partner legal authority to make medical decisions if you become incapacitated. Without this document:
- Biological family members have priority decision-making authority
- Your partner may be excluded from medical consultations
- Disputes between your partner and family could delay critical care
3. HIPAA Authorization
A separate HIPAA authorization ensures your partner can:
- Access your medical records
- Communicate with healthcare providers
- Receive updates on your condition
- Be present during medical consultations
4. Durable Power of Attorney (Financial)
Authorizes your partner to handle financial matters during incapacity:
- Pay bills and manage accounts
- File tax returns
- Manage investments
- Handle real estate transactions
Springing vs. Immediate: Consider whether the POA should be effective immediately or only upon incapacity.
5. Beneficiary Designations
The most efficient way for unmarried partners to transfer wealth, as these assets pass outside of probate:
| Account Type | How to Designate Partner |
|---|---|
| Retirement Accounts (401(k), IRA) | Update beneficiary form with plan administrator |
| Life Insurance | Name partner as primary beneficiary |
| Bank Accounts | Add partner as POD (Payable on Death) beneficiary |
| Brokerage Accounts | Register as TOD (Transfer on Death) to partner |
| Health Savings Accounts | Designate partner as beneficiary |
SECURE Act Consideration: Non-spouse beneficiaries must generally withdraw inherited retirement accounts within 10 years, potentially creating significant tax liability. Married spouses have more favorable spousal rollover options.
6. Revocable Living Trust
For unmarried couples with substantial assets, a trust offers significant advantages:
- Avoids probate (maintains privacy)
- More difficult for family members to contest than a will
- Can include detailed provisions for partner care
- Allows for coordinated planning between partners
Joint Ownership Considerations
Joint Tenancy with Right of Survivorship (JTWROS)
When property is titled as JTWROS, the surviving joint tenant automatically inherits the decedent's share:
Advantages:
- Avoids probate for that asset
- Simple and inexpensive to establish
- Immediate transfer upon death
Tax Implications for Unmarried Couples:
Gift Tax Issues with Unequal Contributions: When one partner contributes more to a jointly-owned asset, a gift may occur:
- If Partner A contributes $400,000 and Partner B contributes $0 for a home titled as JTWROS, Partner A has made a $200,000 gift to Partner B
- Gifts exceeding the annual exclusion ($19,000 in 2025) reduce the lifetime exemption
Estate Tax Inclusion Rules: For JTWROS between non-spouses, the full value of the property is included in the first decedent's gross estate, EXCEPT to the extent the survivor can prove they contributed to the purchase. This is different from the 50% automatic inclusion rule for married couples.
Tenants in Common
An alternative to JTWROS that may be more appropriate when:
- Partners want to leave their share to different beneficiaries
- Partners contributed unequal amounts and want to maintain separate ownership percentages
- Either partner has children from prior relationships
Domestic Partnership and Civil Union Considerations
Recognition and rights vary significantly by state:
| Status | Federal Tax Treatment | State Recognition |
|---|---|---|
| Marriage | Full federal benefits | All states |
| Civil Union | Not recognized federally | CO, HI, IL, NJ, VT |
| Domestic Partnership | Not recognized federally | Varies by state/locality |
Key Points:
- Domestic partnerships and civil unions do NOT provide federal tax benefits (no marital deduction, no portability)
- State-level benefits may include inheritance rights, hospital visitation, or healthcare decision-making authority
- Same-sex married couples receive full federal recognition following the Windsor and Obergefell decisions
- Estate planning documents remain essential even with state registration
Life Insurance as a Planning Tool
Life insurance is particularly valuable for unmarried couples:
Advantages
- Creates Instant Estate: Provides funds immediately upon death
- Avoids Probate: Proceeds pass directly to beneficiary
- Liquidity: Cash to pay bills, taxes, or maintain lifestyle
- Difficult to Contest: Contract law protects beneficiary designation
- Estate Tax Planning: Can be placed in Irrevocable Life Insurance Trust (ILIT) to remove from taxable estate
Planning Strategies
- Income Replacement: Replace deceased partner's income for survivor
- Equalization: If one partner has more separate assets going to children, insurance can equalize inheritance for the other partner
- Estate Taxes: Provide liquidity to pay estate taxes if partner inherits assets exceeding the exemption
Cohabitation Agreements
Similar to prenuptial agreements for married couples, cohabitation agreements can address:
- Property ownership and division during relationship and at breakup
- Financial responsibilities during the relationship
- Distribution of jointly-owned property
- Pet custody arrangements
- Dispute resolution procedures
These agreements work in conjunction with estate planning documents to provide comprehensive protection.
Sarah and Jennifer, an unmarried couple, have lived together for 25 years. Sarah dies without a will, leaving a $2 million estate. Under intestacy laws in most states, who will inherit Sarah's assets?
Mike and David, unmarried partners, purchase a $600,000 home as joint tenants with right of survivorship. Mike contributed $600,000 and David contributed $0. What are the gift tax consequences of this transaction?
Which of the following is TRUE regarding estate planning for domestic partners registered in a state that recognizes domestic partnerships?