Estate Planning for the Unmarried Adult addresses a wide range of both tax and non-tax issues that face the growing number of American adults who, from choice, divorce, outliving a spouse, or legal proscription, are not involved in a marital relationship. This Portfolio, written by Richard M. Horwood, Esq., Horwood Marcus & Berk Chtd.; Lauren J. Wolven, Esq., Horwood Marcus & Berk Chtd.; and Jeffrey A. Zaluda, Esq., Horwood Marcus & Berk Chtd.; discusses the definition of who is a “spouse” or “family member” and situations in which a family-type relationship is recognized.

This Portfolio also addresses “marriage penalties” and “marriage advantages” implicit in the tax law. For example married couples often have a higher income tax liability than two cohabiting unmarried individuals (domestic partners) earning the same income and having the same deductions. On the other hand, a spouse can obtain employer-provided health insurance for his or her spouse without income tax consequence, unlike a domestic partner to whom income equal to the value of his or her partner's insurance premiums is imputed.

The recognition of a family, or non-family, relationship is critical in the transfer tax area. Because domestic partners do not have the benefit of the unlimited gift and estate tax marital deductions, they cannot avail themselves of an important estate planning strategy and must analyze financial transactions and property acquisitions for their transfer tax consequences. On the other hand, the Chapter 14 special valuation rules will not apply to domestic partners, making available estate freezing techniques such as grantor retained income trusts that are unavailable to traditional family members. Unanticipated generation-skipping transfer tax consequences also may arise if there is a great age disparity between domestic partners or if one partner wishes to benefit the child of the other partner.

Estate Planning for the Unmarried Adult also discusses alternative financial arrangements unmarried adults can make, including the use of partnerships to acquire life insurance and real property and provide income to the less wealthy partner. The Worksheets include a sample cohabitation agreement that domestic partners can use to define their property rights, as well as a sample limited partnership agreement. Finally, this Portfolio addresses the special problems a disabled or incompetent unmarried adult might face because of the lack of a legally recognized relationship with the person designated as surrogate decision maker.

Estate Planning for the Unmarried Adult allows you to benefit from:

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area
• Invaluable practice documents including tables, charts and lists
• Plain-English guidance from world-class experts
• Real-world and in-depth analysis that lets you explore various options
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more
• Alternative approaches to both common and unique tax scenarios

This Portfolio is part of the Estates, Gifts and Trusts Portfolios Library, a comprehensive series containing more than 80 Portfolios, which covers critical transactions in estate, gifts and trusts planning. This highly-regarded resource library offers commentary on a wide range of estate planning topics including: Generation Skipping Tax, Family Limited Partnerships, Charitable Remainder Trusts, Estate Planning for Closely-Held Businesses, Exempt Organizations and Private Foundations, Life Insurance, Valuation, and more.

Detailed Analysis

I. Introduction

A. Purpose of this Portfolio

B. Issues Addressed

II. Marriage Penalty and Marriage Advantage

Introductory Material

A. Tax Laws

1. Tax Rates

2. Transfer Taxes

a. Marital Deduction

b. Lifetime Transfers

3. Phase-Outs, Exclusions, and Limits

a. Earned Income Tax Credit

b. Rental Property Losses

c. Net Capital Losses

d. Gain on Sale of Home

e. Alternative Minimum Tax

f. Social Security Benefits

g. Health Insurance

h. Standard and Itemized Deductions

i. Carry-Over Basis

j. Credit For the Elderly or Disabled

k. Child and Dependent Care Credit

l. Grantor Trust Considerations

4. ERISA

a. Transfer of an Interest in an ERISA Qualified Plan

b. Rollovers

5. Joint Returns

B. Nontax Laws

1. Qualification for Public Aid Entitlements

2. Statutory Share

3. Spousal Communication Privilege

4. Wrongful Death and Loss of Consortium

5. Tenancy by the Entireties

III. Who Is a Family Member?

A. Who Is a Spouse?

1. As a Married Person

2. Judicial Recognition of Nonmarital Relationships

a. Unmarried Opposite-Sex Couples

b. Same-Sex Partners

c. The IRS Position

3. Qualification as a Dependent

B. Domestic Partner Classification

C. Who Are the Other Family Members?

1. Overview

2. Co-Parenting and Adopting Children

a. Second-Parent Adoptions

b. Two-Parent Adoptions

3. Inheritance Rights of Adopted Children

4. Children Born Out of Wedlock

5. Adopting Another Adult

a. Validity of Adoption

b. Inheritance Under Pre-Existing Testamentary Instrument

c. Loco Parentis Rule

6. Assisted Conception

a. Legal Consequences to Partners

b. Inheritance Rights to Semen Donor

c. Special Concerns With In Vitro Fertilization

IV. Transfer Tax Planning

A. Gift Giving

B. Generation-Skipping Transfers

1. Background

2. Generation Assignments

C. Freezes and Discounts - Chapter 14

1. Background

2. Family Members

a. Section 2701 Definitions

b. Section 2702 Definitions

3. Section 2701 - Transfers of Interests in Business Entities

4. Section 2702 - Transfers in Trust

5. Section 2703 - Valuation of Restrictive Agreements

6. Section 2704 - Lapsing Rights and Restrictions

D. Other Family Attribution Rules

V. Life Insurance

A. Determination of Need

B. Types of Life Insurance

C. Background to Income Tax and Estate Tax Consequences

D. Irrevocable Trusts

1. Comparison with an Outright Transfer

2. Avoiding the Gift Tax with a Crummey Power

3. Grantor Trust Status

4. Requirements for Exclusion from Gross Estate

5. Appointing a Trustee

E. Partnerships

1. Background

2. Formation of Partnership

3. Insurance Payable to Third Party vs. to Partnership

F. Insurable Interest

1. Overview

2. Application to Unmarried Persons

3. Who Can Contest?

G. Viatical Settlements and Accelerated Death Benefits

1. Overview

2. Income Tax Consequences

3. Estate Tax Consequences

VI. Benefits, Entitlements, and State Law Rights

A. ERISA Qualified Benefits and IRAs

1. Beneficiary Options

a. Trusts and Individuals

b. Future-Named Beneficiaries

c. Changing Beneficiaries

2. Separate Accounts

3. Distributions

4. Other Tax Implications

B. Employee Benefits - Health Insurance

1. Current Legal Status

2. Taxing Health Plan Coverage

3. Taxing Reimbursements

4. COBRA

C. Entitlements

D. Statutory and Common Law Rights

1. Family Member

2. Statutory Heir

3. Statutory Share

4. Inheritance Tax

VII. Defining Property Rights

A. Introduction

B. Enforcement of Unwritten Agreement

C. Valid Consideration

D. Written Agreements

E. Tax Consequences During the Relationship

1. Gift or Income?

2. Joint Tenancy

a. Income and Gift Tax Consequences

(1) Joint Bank and Brokerage Accounts

(2) Other Joint Assets

(3) Risks

b. Estate Tax Consequences

c. Purchase of a House

3. A Partnership for Federal Tax Purposes

a. Partnership Classification

b. Tax Consequences

c. Guaranteed Payment

4. Additional Estate Planning Opportunities

a. Transfer Tax Opportunities

b. Other Opportunities

F. Tax Consequences on Termination of the Relationship

1. Property Settlements

2. State Law Impact

VIII. Disability and Incompetence

A. Durable Power of Attorney

1. Overview

2. Common Law and Durable Power of Attorney for Financial Affairs

a. Advantages

b. Selecting the Agent

c. Alternative to Guardianship or Conservatorship

3. Property Powers

4. Health Care Powers

a. Overview

b. Right to Refuse Medical Treatment

c. Exercising the Durable Health Care Power of Attorney

B. Health-Care Surrogate

C. Living Wills

D. Guardianships

1. Creation

2. Options

a. Guardian for One's Self

b. Guardian for a Child

(1) Standby Guardian

(2) Testamentary Guardian

c. Eligibility

3. Powers

E. Planning for Public Aid

1. Introduction

2. Need-Based Benefits: Supplemental Security Income (SSI) and Medicaid

a. Planning for One's Own Eligibility

b. Planning for Eligibility of Another

c. State Claims for Reimbursement

3. Contract Based Benefits: Social Security and Medicare

4. Trusts Established with the Disabled Person's Assets: Eligibility

5. Trusts Established for the Benefit of a Disabled Person with Another Person's Assets: Eligibility

6. Trust Drafting Considerations

Working Papers

Table of Worksheets

Other Sources

Worksheet 1 Family Attribution Rules Under Various Code Sections

Worksheet 2 Sample Cohabitation Agreement

Worksheet 3 Sample Limited Partnership Agreement

Worksheet 4 Sample Power of Attorney for Financial Matters and Affidavit of Attorney-in-Fact

Bibliography

OFFICIAL

Statutes:

Income Tax

Estate Tax

Gift Tax

Generation-Skipping Transfer Tax

Special Valuation Rules

Regulations:

Committee Reports:

Treasury Rulings:

Cases:

UNOFFICIAL

Text and Treatises:

Tax Management Portfolios:

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