Estate Planning- Update Winter 2022-2023- Unmarried, Cohabiting Couples
ESTATE PLANNING UPDATE WINTER 2022/2023 – LEGAL AND TAX ISSUES OF UNMARRIED COHABITING COUPLES:
Tax Considerations:
It is no secret that marriage plays a crucial role in the tax regime of the United States.
Income Taxes:
While married couples may choose whether to file their income taxes "jointly" or "separately," unmarried individuals must generally file separately, regardless of their living arrangement. An exception may exist for couples enjoying a "common law marriage.” Unmarried couples, however, may have opportunities to make strategic decisions on their income tax returns. For example, unmarried couples with children can arrange for the higher-income-earning parent to file as "head of household," claiming the children as dependents to receive additional tax deductions. Because the higher-earning parent is in a higher income tax bracket, that parent will typically gain a greater benefit from the tax deduction. A benefit may also be realized in connection with a mortgage on the shared residence.
Gift Taxes:
When it comes to transferring assets between spouses, married individuals can make unlimited gifts to their U.S. citizen spouses with no tax consequences.
Estate and Inheritance Taxes:
Transfers at death may be subject to federal or state estate or inheritance taxes. Similar to gift taxes, the Tax Code favors married couples when it comes to estate and inheritance taxes. Unmarried couples, however, have to take estate tax into account.
Legal Considerations:
Tax implications aside, unmarried couples must keep other important practical considerations in mind.
• Retirement Accounts
• Beneficiary Designations
• Wills and Trusts
• Incapacity Documents
Conclusion:
Dealing with tax and legal issues as an unmarried cohabiting couple can create additional complications beyond basic estate planning. However, with adequate planning, unmarried cohabiting couples can take control to protect one another and avoid unintended consequences.
For more information on this and other topics, please contact Kevin via any of the channels listed below:
💻https://www.kmckernanlaw.com
📧kevin@kmckernan
📞718-317-5007
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