Estate Tax Planning for Unmarried Couples

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12.07.15 | T&E Chat

Unlike married couples, who can take advantage of the marital deduction, unmarried partners can’t transfer unlimited amounts to each other tax-free. To reduce their estate tax bills, they must take some additional steps.

Unmarried couples can utilize two strategies in order to reduce their estate tax liability:

• Make lifetime gifts using the $14,000 per year per recipient annual gift tax exclusion. If regular annual gifts are made early enough, a significant amount of wealth can be transferred on a tax-free basis.

• Create a Grantor Retained Income Trust (GRIT), a technique available only to unrelated persons. With this strategy, you transfer some or all of your assets to an irrevocable trust, reserving the right to receive the trust’s income during its term. At the end of the term, the assets are transferred to your partner. If you die before the end of the trust term, however, the assets will be included in your estate. (they revert to you).

When you contribute assets to a GRIT, you make a taxable gift to your partner. But the amount of the gift for federal tax purposes is deeply discounted by subtracting the actuarial value of your reserved income and reversionary interests from the value of the assets.

Questions about creating a GRIT? Contact your Berdon advisor or Marco Svagna, CPA, at msvagna@berdonllp.com.

Marco Svagna, a tax partner at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on estate and income tax issues, succession and financial planning, and other matters relating to the preservation of wealth.