According to a 2019 survey conducted by the Pew Research Center, 7 percent of surveyed adults were living with an unmarried partner. This number is up from 3 percent in 1995. More people, such as yourself, are entering long-term committed relationships without getting married. Unfortunately for unmarried partners, married couples tend to enjoy greater protection from most state and federal laws when it comes to inheritance, taxes, and decision-making powers. Therefore, it is important you engage in comprehensive financial and estate planning. Because without proper planning, your beloved partner could end up with nothing when you pass away.
The Law Is Not on Your Side
One of the great things about the state’s probate or estate code is that is has a plan for you, in case you do no estate planning. Meaning, that if you do no estate planning, Texas’ intestacy statute will determine who will receive your money and property and the amount each legal heir will receive. While not the law everywhere, Texas’ intestacy laws state your money and property will go first to your surviving spouse (if you are married), then to your descendants (children or grandchildren), your parents, your siblings, and your siblings’ children, in that order, depending on who survives you. What this means is, if you had intended to provide something to your partner but failed to plan before your death, your partner will receive nothing under the law. This is because the Texas Estate Code looks to relationships of either blood (related family) or marriage, and does not mention unmarried partners at all.
Unmarried partners receive the same treatment when it comes to assets that would not be considered part of your probate estate, such as life insurance policies or other payable on death beneficiary assets. For example, if you have a life insurance policy and fail to complete the beneficiary designation form, the proceeds from the policy may be paid to your estate. That money is then divided among your heirs, as determined by a probate proceeding. As mentioned above, unmarried partners are not mentioned in the estates code and are not one of the people who could be an heir. Leaving your unmarried partner with nothing.
Similarly, if your retirement account does not have a named beneficiary, that account may also end up going through probate, which may cause unintended income tax consequences and distribution according to the default rules of the account agreement.
The Unmarried Family: A Different Kind of “Blended Family” Concern
In most cases, when we refer to blended families, we mean someone who remarries and has children from a previous relationship. In that instance, the planning objective is to make sure that the children from the previous relationship are not completely disinherited. This is because, in many situations, the new spouse’s claim to the deceased’s money and property has priority. However, if you have children from a previous relationship but are not married to your partner, the concern becomes protecting your partner who, under the law, would not be entitled to anything because your children would more than likely receive everything.
Federal Tax Issues
When both married partners are US citizens, each can give the other an unlimited amount of money or property during their lifetime without worrying about the federal gift tax. Unmarried partners who are both US citizens are not afforded the same consideration. Therefore, you can give only up to the annual exclusion amount to your partner without having to consider the gift tax consequences. The annual exclusion amount for 2021 is $15,000 and is adjusted periodically for inflation. Should you decide to give your partner more than the annual exclusion amount, you will need to file a federal gift tax return to report the excess, or you will need to use part of your lifetime gift exemption. On the bright side, federal gift tax is not due until you have made gifts totaling more than the individual estate and gift tax lifetime exclusion amount, which is $11.7 million for 2021.
Federal estate tax rules are similar to the gift tax rules. Married partners are allowed to leave to each other at death an unlimited amount of money and property free of federal estate tax. However, if you and your partner are not married, any money or property you leave to your partner counts towards the $11.7 million lifetime exclusion amount. Once the exclusion amount has been exceeded, an estate tax is due when the giver dies. If your lifetime taxable gifts (those over the annual amount each year) and the amount of money or property transferred at death exceed the lifetime exclusion amount, an estate tax of 40% will be due.
Although the financial aspects of estate planning may be enough to motivate you to plan, there are also important personal matters to consider, including who will handle financial transactions on your behalf and who will communicate or make medical decisions for you if you are unable. If you do not name trusted individuals to handle your financial and medical affairs, the state will apply its own order of priority and appoint someone. In Texas, the law gives priority to married spouses first, then to next of kin (meaning the person with the closest blood relation to you. Often that means a child (if they are not a minor), then a parent, then a sibling. Unmarried partners fall far below all these others. This situation can be incredibly messy if your relationship with your family is poor or you would not otherwise trust them to make decisions for you.
Actions to Take Now
If protecting your partner is important to you, here are a few things you can do today to get started:
- Review your beneficiary designations on your life insurance and retirement accounts. Remember, they must be filled out correctly to be effective.
- Review how your accounts and property are owned. Living together in your house does not mean you both own it. In addition, it is important to know who has access to the account used for household expenses so the healthy partner can continue paying the bills if one of you becomes incapacitated or passes away.
- Give us a call to memorialize your wishes. Even if you already have an estate plan, let us review your documents to make sure they still meet your needs. A comprehensive estate plan should address who will receive your money and property at your death, who will make financial and medical decisions for you if you cannot, and outline your end-of-life wishes.
We Are Here to Help You
If you are unmarried but you and your partner need help with taking the next steps to protect the future, call us. We are here to help you create a new estate plan or revise an existing one.
Give Us a Call
Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.
 Pew Research Center, Marriage and Cohabitation in the U.S. (Nov. 6, 2019), https://www.pewresearch.org/social-trends/2019/11/06/marriage-and-cohabitation-in-the-u-s/.