Although some couples remain unmarried to protect their estates, that strategy may backfire if you end up paying estate taxes. If you choose not to marry, you and your partner need to educate yourselves on your estate planning and retirement options.
If 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.
This exemption doesn’t extend to unmarried couples. Estates of up to $5.43 million are exempt from federal estate taxes. Washington and Oregon, however, have lower thresholds for estate taxes with Washington allowing for $2 million and Oregon $1 million. While these state allowances may sound high to the average person, when you combine the value of your home, any 401k or other retirement funds, and any property or assets you may have previously inherited, that threshold may be closer than you think.
Speaking of retirement funds, a recent article in Kiplinger’s Personal Finance, titled “Retirement: Estate planning for unmarried couples,” explains that the tax code is also kinder to married couples as far as inherited IRAs. A spouse who inherits an IRA is allowed to roll the account into his or her own IRA, and a surviving spouse can delay taking required minimum distributions until age 70½. As he or she waits to take the RMD, the account will continue to grow tax-deferred. A spouses can also roll an inherited Roth IRA into their own Roth, and they’re not required to take RMDs.
Not so for unmarried partners.
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.
Get started on seeking answers to your estate tax questions at one of our free estate planning Workshops. Please contact us at 360-975-7770 or at firstname.lastname@example.org to sign up and learn more! Already a client? Ask us about our Client Service Program where we can assist you in updating your estate planning to accommodate unmarried coupling.
Reference: Kiplinger’s Personal Finance (April 12, 2015) “Retirement: Estate planning for unmarried couples”