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Unmarried Couples Need to Know!

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With good planning, unmarried couples can receive many of the same legal protections as married couples when it comes to inheritance and taxes.

Unmarried couples need to know that Maryland tax law has changed in their favor, SORT OF. Ther is a big catch, however. You only qualify for this relief and potentially huge savings by filing for it.

Until October 1, 2024, a “Significant other,” or Domestic Partner,” needed to pay an inheritance tax of 10% on inherited property, with few exceptions. Inherits from close relatives, like spouses, parents, children, and siblings, are exempt from that tax. Inheriting from your long-time significant other carries a 10% tax, except for life insurance and jointly real estate co-owned with a “Domestic Partner.”

That Domestic Partner exception for qualifying unmarried couples expanded as of October 1st, if the domestic partners file to establish that relationship. For those who file a short form with the Registrar of Wills, all assets, like bank accounts, cars, and IRAs, are also now exempt. The form is on the Register of Will’s Website and is available by clicking here. The proof of who qualifies is also greatly simplified by filing a simple agreement with the local register of wills.

There are other important reasons for unmarried couples to prepare their estate plans.  Unmarried couples must engage in estate planning because, without proper planning, their partner may be left with nothing when the first partner dies. Details of protecting partners are explained in a recent article, “BUSINESS: Unmarried Couples and Estate Planning,” from The Item.

For married couples, the spouse is usually the first to inherit, followed by children, parents, siblings, and other relatives, depending on who is still living. However, if you’re unmarried and no plans have been made, your partner receives nothing. In fact, in many states, the law doesn’t recognize unmarried couples at all.

Life insurance policies and retirement accounts could go to your estate if no designated beneficiary is named. This could lead to probate, a complicated and costly legal process where the court decides how assets should be distributed.

To avoid these and many other problems, having an estate plan to take care of your Domestic Partner is best. This includes making a Will, naming beneficiaries for life insurance and retirement accounts, and clearly stating your intentions in legally enforceable documents. This protects your partner’s rights and ensures your assets are distributed according to your wishes.

Married partners have the advantage of gifts, as they can give each other unlimited amounts of money or property without worrying about gift tax. However, there are limits to how much unmarried partners may give without facing gift tax exclusions, also known as the annual exclusion.

If you gift your partner more than the annual exclusion amount in a year, you must file a federal gift tax return and report the excess amount. The rules for federal estate tax are quite similar to the gift tax rules.

When married people die, they may leave an unlimited amount of money and property to each other without worrying about federal estate tax. However, any money or property left to an unmarried partner will count towards your lifetime exclusion amount.

Once this exclusion amount is exceeded, an estate tax will be due when the giver passes away. In 2023, the lifetime gift and estate tax exemption is $12.92 million, and the annual exclusion is $17,000. This amount will change over time because of inflation.

There are also personal matters to think about. If you cannot, you’ll want to designate someone to handle financial and legal transactions and make medical decisions on your behalf. If you don’t choose a trusted person for these roles and have the appropriate documents created, your partner may not be included in these decisions. If you don’t have a good relationship with your family, this could create a situation where your partner is shunted aside.

What can unmarried couples do? Meet with an experienced estate planning attorney, sign the documents to verify your Domestic Partner status,  and create a Will to protect your wishes after you pass. Have a Power of Attorney and Medical Power of Attorney created so your partner can decide on your behalf if you become incapacitated. Doublecheck your beneficiary designations to be sure the person who will receive proceeds from your life insurance and retirement accounts is the person you want. If you own a home together, talk with your estate planning attorney to plan for what will happen if you need long-term care or predeceases the other.

Reference: The Item (Aug. 26, 2023) “BUSINESS: Unmarried Couples and Estate Planning”