1. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company1 Some domestic partners of the opposite sex do not get married Some states permit domestic partners of the same sex to enter into civil unions –Such relationships are not recognized for federal tax purposes Special planning is required to manage assets in the event of incapacity and to benefit each other during life and after death What Is Planning For Non-Traditional Relationships?

2. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company2 When, absent planning, a domestic partner would likely be excluded from inheriting from the other partner When two unmarried individuals are in a committed relationship and wish to provide for each other in the event of incapacity or death When the net worth of two domestic partners differs substantially When there are children from a prior relationship When domestic partners co-parent a child who is related to only one of the partners When Is Use Of Planning For Non-Traditional Relationships Appropriate?

3. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company3 For federal tax purposes, domestic partners of same sex who are otherwise unrelated are treated as unrelated Domestic partners of opposite sex should examine state law on common-law marriage, may be treated as married –Current state of residence –States of prior residence What Are The Requirements?

4. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company4 Spouses receive some benefits that non-spouses do not Transfer tax opportunities for unmarried couples Income tax strategies Tax Implications

5. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company5 Spouses receive some benefits that non-spouses do not –Gift and estate tax marital deductions –Split gifts –Generation-skipping transfer tax assignment of spouse to same generation as transferor Tax Implications (cont’d)

6. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company6 Spouses receive some benefits that non-spouses do not –Joint tenancy One-half estate tax inclusion for spouses (for others, generally full inclusion except to extent consideration furnished by survivor is shown) Marital deduction if gift of joint interest between spouses Creditors Tax Implications (cont’d)

7. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company7 Spouses receive some benefits that non-spouses do not (cont’d) –Joint tenancy (cont’d) –Domestic partners should consider –Use of tenancy in common –Use of co-ownership agreements –Use of POD accounts –Affect of form of title Tax Implications (cont’d)

8. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company8 Spouses receive some benefits that non-spouses do not (cont’d) –IRAs and qualified plans Spousal rollovers Marital deduction –Terminating relationships Special gift and income tax rules for spouses on divorce May be gift or income tax issues for domestic partners Tax Implications (cont’d)

9. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company9 Transfer tax opportunities for unmarried couples –Use annual exclusion gifts and unified credit –Use credit shelter bypass trust –Avoid double taxation using trust for domestic partner which avoids surviving partner’s estate –Life insurance Use of trust Insurable interest issue Tax Implications (cont’d)

10. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company10 Transfer tax opportunities for unmarried couples (cont’d) –Domestic partners are generally treated as unrelated for purposes of Sections 2701, 2702, 2703, and 2704 Chapter 14 valuation freeze rules don’t apply e.g., grantor retained income trust can still be used by domestic partners Tax Implications (cont’d)

11. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company11 Child may be biological or adopted child of one or both domestic partners Trusts for children of prior relationship Domestic partners and adoption issues –Refer to child by name in estate planning documents Guardianship issues –Nomination of other domestic partner as guardian, possibly in will Providing For Children

12. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company12 Domestic partners are not treated as related Certain related party income tax rules don’t apply to domestic partners –Disallowance of losses (Section 267) –Installment sale rules (Section 453) –Like-kind exchanges (Section 1031) –Denial of depreciation deduction or capital gain treatment for certain transfers with trusts for related persons Income Tax Strategies for Transferring Wealth

13. Planning for Non-Traditional Relationships Chapter 57 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company13 Some states grant community property rights to domestic partners May wish to enter into cohabitation agreement setting forth how property will be owned and managed Gift or income tax implications to community property status for domestic partners? –Federal law treats domestic partners as unmarried Issues In Community Property States