By by Martin M. Shenkman, CPA, MBA, JD
Gift Planning for Unmarried and Same Sex Couples
October 17, 2011
Money Matters Radio – Estate Planning Q&A with Gary Goldberg
By: Martin M. Shenkman, Esq.Introduction/Overview:
Many unmarried couples and same sex couples hold considerable wealth. What gift planning steps should they consider now and why?
How has the 2010 Tax Act changed planning for unmarried couples and should they be doing anything now?
For most unmarried couples, the 2010 Tax Act has provided a completely new planning paradigm. And most unmarried couples should move quickly to take advantage of these opportunities before they disappear. The increase in the lifetime gift exemption from $1 million to $5 million makes it feasible for the vast majority of unmarried couples to change ownership of assets now without a tax cost. If the negotiations on Capital Hill could eliminate this opportunity, the gift exemption drops back to the $1 million level it had been at for years. Remember, while there has been a contingent of people protesting the evil “death tax,” no one has protested the gift tax.
Is this really such a big deal for unmarried couples? Does planning for them really differ from married couples?
It’s huge. Our tax laws have always been biased against unmarried or same sex couples. Even the 2010 Tax Act continued that bias. The key difference from an estate planning perspective is that married couples can transfer property freely between themselves with no gift tax concerns. Unmarried or same sex couples do not qualify for the unlimited marital deduction. Even if the unmarried or same sex couple registered under a state domestic partnership act, or married under a state’s laws that permitted same sex marriage, they are not recognized as a couple for federal estate tax purposes.
So what does this opportunity mean and what should unmarried couples do?
They should first determine their goals and create a plan. For many unmarried couples equalizing assets between the partners (e.g, assuring both names are on their home) is a primary planning objective. In the past the gift tax was a major impediment to doing this. Now, an unmarried partner can shift $5 million to his or her partner without any gift tax worries. For most unmarried couples this large dollar figure provides enough room to solve any planning issues. But if the political and tax wrangling in Washington results in this figure dropping dramatically, the planning opportunity will disappear.
Are there clever ways to do this planning – something better than just making the gift? The kind of complicated and costly planning folks can brag about on the golf course?
Absolutely. Giving a simple gift, like re-titling the deed to the couples home is easy, simple and cheap. But it is also limited. What if the value of that home grows tremendously in future years when the real estate markets recover? What happens if either member of the couple is sued? A simple gift offers no protection of the assets involved and no estate tax planning benefit. The best option, so long as the amounts involved justify it, is to make the gifts to a trust that will benefit the partner, yet protect the assets.
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