5 ways to help ensure financial security for you and your partner
If you are in a live-in relationship with your partner, there are many ways to help ensure your financial security. Your financial advisor can help you decide which ones make the most sense for your situation.
There’s nothing as simple, certain, and powerful as life insurance to give you financial security. Purchasing life insurance policies and designating each other as the beneficiary gives both of you the security of knowing that current joint financial responsibilities can continue to be met in the event of one’s death.
Under a Joint Tenancy with Right of Survivorship (JTRS) arrangement, both partners own an equal, undivided interest in your property and give the other the right to take the entire property upon death. Unlike a will, a JTRS cannot be contested, providing you with much more certainty. Also, you avoid the cost, delay, and privacy issues of probate.
However, there is a downside to JTRS: Severe gift, estate, and generation-skipping taxes may be triggered upon the formation or termination of the tenancy. So speak with a financial advisor before making a final decision.
Annual gift exclusion
Unmarried partners can take full advantage of the annual gift tax exclusion. They can give each other—or anyone else—up to $14,000 a year (2014 limit, indexed for inflation) without anyone paying taxes on that money.
Tuition and medical care gifts
Unmarried partners can also pay each other’s tuition or medical costs not covered by insurance without having to pay a gift tax. But to avoid the gift tax, these payments must be made directly to the college or healthcare provider.
Unmarried partners can use the unified credit, which is used against taxable gifts (gifts in excess of the $14,000 annual exclusion) to avoid gift taxes. In 2014, you may give up to $5.34 million (also indexed for inflation)—in addition to your annual exclusion gifts—to your partner or anyone else. It is called the unified credit because it also covers estate tax obligations. In other words, the total amount that can be excluded from the combination of federal gift taxes and the federal estate tax is $5.34 million for a lifetime. If you gave away $1 million, the amount available to exclude from your estate tax becomes $4.34 million.
Please speak with your tax or legal advisors regarding your personal circumstances.