Goralka Law Firm
4470 Duckhorn Drive
Sacramento, CA 95834

Telephone: 916.930.6947
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TAX AND ESTATE PLANNING CONSIDERATIONS
FOR UNMARRIED DOMESTIC PARTNERS

Unmarried partners have substantially different tax and legal issues. A married couple is protected to a degree by the intestate succession provisions of the Probate Code. The surviving spouse will receive all or a portion of the deceased spouse=s estate if a spouse dies without a will. The amount received depends upon whether the property is separate or community and the identity of the other heirs. In the absence of a Will or other estate planning device, there is no saving mechanism within the Probate Code to provide for transfers of property to the unmarried partner. If an unmarried partner dies, the surviving partner will not receive any portion of the estate in the absence of a will or other transfer instrument. In addition, the partner may not have a legal basis to be involved in decisions with respect to medical decisions, funeral instructions and basic issues. There is no marital deduction available for estate tax purposes so greater care is needed for estate planning. The following is a summary of some of the issues to be considered.

1.   TAX DIFFERENCES.

   a.   Disadvantages. The unmarried couples does not have the benefit of the following tax provisions.

      i.    No joint tax return (IRC Section 6013)

      ii.   Limited circumstances for dependency exemption (IRC Section 152)

      iii.  No community property step-up in basis (IRC Section 1014)

      iv.  No marital deduction for estate tax (IRC Section 2056 and 2523)

      v.   No tax-free transfer at separation (IRC Section 1041)

      vi.  Generation skipping tax assignment issues.

   b. Advantages. There are some advantages available for the unmarried couple.

      i.  Special rules to prevent tax avoidance typically do not apply (i.e. IRC Section 267 limits on losses between related parties)

      ii. Special valuation rules (IRC Section 2071 through 2704) do not apply

2.   OTHER DIFFERENCES. Other concerns for the unmarried couple:

   a.   No survivorship rights (as surviving spouse).

   b.   No statutory duty of support.

   c.   To provide benefits for non-married partner at death, must do so by contract, title to property, design action of beneficiary and will or trust.

   d.   Special intention for healthcare decisions, funeral instructions and anatomical gifts.

3.   CO-HABITATION AGREEMENT. Contracts between unmarried co-habitants may be enforceable. A court may have authority to devise additional equitable remedies to protect a non-marital relationship in cases in which existing remedies prove inadequate.

   a.   Marvin v. Marvin. A co-habitation agreement was deemed unenforceable because of public policy prohibition against illegal or immoral sexual services (see Marvin v. Marvin. (1986) 187 Cal. App. 3d 660). Post-Marvin agreements would be invalid only if based upon illicit sexual services. Taylor v. Fields. (1986) 178 Cal. App. 3d 653 affirms Marvin ruling regarding a mistress=s claim against a widow for support.

   b.   Form of Agreement. Family code requirements (Family Code Section 1600-1617) and Probate Code requirements for waiver of spousal rights (Probate Code Section 141-147) are not applicable to unmarried domestic partners. Domestic partners should expect the potential for other parties to contest agreements because of undue influence due to the confidential relationship. As a result, it is even more important for full disclosure and separate counsel between the partners.

   c.   Content. Specific, clear discussion of intent should include:

      i.     Income and expense issues;

      ii.    Property rights;

      iii.   Support;

      iv.   Buyout of joint property;

      v.    Subsequent marriage of either partner; and

      vi.   Tax issues such as income from payment of others, expenses or unintended gifts from joint title.