If you have a "significant other" who is not your "spouse," then you already know some of the estate planning challenges when one partner dies. The surviving partner could be out on the street (literally) when it comes to residing in the home you share.
In addition, depending on how they are titled and how beneficiary designations are arranged, a surviving partner could be disinherited all together.
That includes when it comes to the retirement funds.
Although some couples remain unmarried by design to protect their estates, they can still provide for one another and ultimately leave assets to their own family members through planning. For example, trusts and life estates are commonly used.
On the other hand, unmarried couples do not enjoy the same estate tax benefits as their married counterparts. For example, if one partner's estate is above the estate tax threshold of $5.43 million in 2015, then taxes begin on the next dollar at 40%.
According to a recent Kiplinger’s Personal Finance article titled “Retirement: Estate planning for unmarried couples,”
"[i]f 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."
Not only does this exemption not extend to unmarried couples, but some states have lower thresholds for their estate or inheritance taxes!
Fortunately for those in Kansas and Missouri, neither state has an estate tax or an inheritance tax.
The Kiplinger article also explains how the tax code is friendlier to married couples when it comes to inherited IRAs.
A surviving spouse who inherits an IRA is allowed to roll the account into his or her own IRA, thereby delaying required minimum distributions until age 70½. As he or she waits to take the RMD, the account will continue to grow tax-deferred.
Not so for unmarried partners.
Nevertheless, 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 and retirement distribution planning can be answered thoroughly by an experienced estate planning attorney.
Talk to him or her regarding the best strategy for your specific situation and marital status.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Kiplinger’s Personal Finance (April 12, 2015) “Retirement: Estate planning for unmarried couples”