The 2 biggest financial issues unmarried same-sex couples should address: Taxes and Inheritance

Many LGBT same-sex couples that I meet don’t have any idea if they’re paying too much in taxes or if they’re even each other’s beneficiaries on their 401k retirement accounts. It’s also common to meet with couples who have lived together for a long time, and still haven’t even decided if they should get married or thought about what that might mean financially. That’s why, as a Financial Advisor and an Accredited Domestic Partnership Advisor, I want to share my thoughts on 2 important areas of financial planning for unmarried same-sex couples: Taxes and Inheritance Rights.

Taxes

Can a Domestic Partnership help you reduce your Income Taxes?

Working as a Financial advisor in California, I’ve met with many types of couples where there may be significant differences in income and age. If one partner earns much more than the other then they may not necessarily benefit from a domestic partnership, since they would be able to save income taxes if they get married. However, if one partner totally supports the other partner, then they may be able to claim them as a dependent which would save income taxes in a domestic partnership. Now if both partners in a relationship are lucky to be high income earners, then a domestic partnership would prevent them from paying the higher taxes that comes with the “marriage penalty.”

Are you exposed to paying Gift Taxes if you get audited?

Typically, couples who share expenses will have a joint bank account. It’s important to know about the potential gift taxes that may be incurred. If two unmarried partners share a joint account, then the partner who deposits more than $14,000 a year is going to incur gift taxes. Only married couples can transfer unlimited money to each other without tax consequences. Anyone who wants to gift (or transfer money to a joint account) may not exceed $14,000 a year or they will have to pay gift taxes.

Estate Taxes: How to avoid them

Estate taxes are applied to a decedent’s assets once they are worth upwards of $5.49M. However, if two partners are married, the estate can be worth any amount and not incur taxes. Unmarried couples are able to avoid estate taxes through the use of trusts. A living trust can help all couples avoid probate court expenses which can range as high as 7% of the estate value. A living trust is especially important for unmarried couples because they don’t get the automatic inheritance rights that married couples get.

Inheritance Rights

Beneficiary Designations

Most couples I meet with don’t know who their account beneficiaries are. The easiest way to make sure your assets get passed on to your partner is to name them as the beneficiary of all your accounts. This would include everything from bank accounts, retirement accounts, life insurance, annuities, and pensions. ills and Living Trusts

A will is important because it lets you designate beneficiaries for all your valuable belongings, not just investment accounts. This could include cars, jewelry, artwork, etc. The downside to a will is that it can be disputed by anyone. Let’s say you have a distant relative who says you owed them money from a loan you never paid, well a probate judge would have to hear them out. This can be avoided with a living trust. There are many ways to have a living trust prepared, but I recommend speaking to an attorney. If you’re not sure whether a will or a trust makes more sense for you, speak to a Financial Advisor who can help you determine which one is suitable. While married couple gets automatic inheritance rights, they would still benefit from a trust to avoid the estate and probate taxes mentioned above.

There are many risks to not having any legal protections in place. Taxes and inheritance are just a couple of financial issues a same-sex couple needs to discuss, but I recommend speaking to a Financial Advisor with the Accredited Domestic Partnership Advisor designation who has experience working with the LGBT community.

By: Robert Castillo, ADPA®

Robert Castillo, ADPA® is a Financial Advisor at Santa Monica, CA based Gerber Kawasaki, an independent investment advisory and wealth management firm with over $625 million in assets under advisement. Robert is also an accredited domestic partnership advisor and has been specializing in financial planning for LGBT same-sex and unmarried couples since 2009. To contact Robert, please email him at Robert@GerberKawasaki.com. You can read Robert’s biography at www.gerberkawasaki.com/team/robert-castillo
Twitter: @RCastilloLA Facebook: www.facebook.com/robert.castillo.90405

Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor and separate entity from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.

Gerber Kawasaki, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.