What are the pros and cons of marriage versus simply living together for older couples? Couples who find love later in life often have different sets of issues and concerns than younger couples. A key concern is estate planning. Whatever you decide to do, we recommend that you consult with an attorney to ensure your wishes will be carried out - because getting married can have a big effect on your estate plan.
How marriage affects estate plans is a common concern among older couples, especially if they own property and other valuables that they wish to go directly to their children from previous marriages. Once you are married, it can be difficult to separate assets. Many states have “elective share” laws that require that a specific percentage of your estate go to your spouse, even if your will states otherwise. So even if you don't include a new spouse in your will, in most states your spouse is automatically entitled to a share of your estate. To prevent this, consider a prenuptial agreement in which both spouses agree not to take anything from the other's estate. Or you can leave something to your spouse and ensure your heirs receive their inheritance by setting up a trust for this purpose.
It is very important for unmarried couples to make a will, especially if they share a home owned by just one member of the couple. If the homeowner dies without an estate plan, the other member of the couple could be out of luck. The state does not protect your significant other, and children or other heirs can get the surviving spouse evicted. One way to protect the surviving spouse is to create a life estate for the surviving partner. This allows the survivor the right to live in the home until he or she dies or moves into a nursing home, at which time the house passes on to children or other heirs. Sometimes the life estate agreement will set aside money to cover maintenance and other expenses.
Some couples remain unmarried to protect their estates - but that strategy can backfire if you end up paying estate taxes. If you are married, you can inherit an unlimited amount of assets from your spouse without paying state or federal estate taxes. In 2023, estates of up to $12.92 million are exempt from federal estate taxes, but 17 states (including Massachusetts) and Washington, D.C., have lower thresholds for their estate or inheritance taxes. You can also give an unlimited amount of assets to your spouse while living without filing a gift-tax return. But that exemption does not extend to unmarried couples.
Married couples also have preferred tax treatment when inheriting an IRA from a spouse. A surviving spouse can roll an IRA into his or her own IRA. They can also postpone taking required minimum distributions (RMDs) until age 73 (or if born in 1960 or later, delay the RMDs until age 75), and allow the IRA to grow tax deferred. Inherited Roth IRAs may also be rolled into a surviving spouse’s Roth IRA with no RMD requirements if certain conditions are met. But these rollover rules are NOT available to unmarried partners. An unmarried partner who is named as an IRA beneficiary can minimize taxes by rolling the account into an inherited IRA, but must take distributions over a 10-year timeframe.
Stay tuned for future blogs which will highlight the impact of other financial matters as couples discuss whether to marry or simply live together. This includes Social Security benefits, long term care, annuities, alimony, sharing expenses, managing debt, and college financial aid.
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Janet Rhodes Friedman, CFP®, CDFA®, MBA
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.