Wealth Planning for the Modern Family

Published: May 21, 2021

The definition of a family has evolved significantly in post-World War II America. A century ago, the idea of “family” conjured up an image of a husband and a wife (both in their first marriage) with children. Fast forward to the 21st century, and this is clearly no longer the prevailing expectation or default image. As society, laws, healthcare, and other factors have shifted, the definition of a family structure has become more varied to include unmarried couples, among others. 

Growth in Unmarried Couples
The percentage of unmarried partners grew from almost none in the late 1960s to over 7% of the adult population as of 2019, according to the U.S. Census Bureau. Conversely, the percentage of married couples dropped in the same period from approximately 70% to a little over 50%. This trend is not expected to abate any time soon. Does it matter? From a financial planning standpoint, it definitely does. Five areas to consider:

1)     To pool or not to pool (your accounts). One of the first questions that often arises is whether to have joint accounts and jointly titled assets. If both names are on a bank account, then both individuals have a legal right to the assets. In terms of a loan or other debt, if your name is on the agreement, then you are liable for the loan. While it may sound unromantic, consider whether this is a long-term relationship, as well as how financially responsible your partner is before making these decisions. It often makes sense for individuals in a relationship to each maintain a separate bank account and credit card, in addition to any joint accounts, so that each party will have an account and credit only he or she can access.

2)     Mind your taxes. With few exceptions, an unmarried couple cannot file a joint tax return. Depending on your individual tax situations, you may end up paying more in taxes if you file as two single people, versus filing as a married couple. In addition, determining which member of the couple is legally allowed to claim deductions can also impact your individual and combined tax liabilities. So plan carefully and consult your tax expert.

3)     Own the “right” way! You may decide to own joint property, such as your house, non-primary real estate, securities, and other assets. Be sure to check tax and estate laws in order to determine legal and optimal ways of owning your assets jointly. Potential structures range from joint tenants with rights of survivorship to placing assets in a joint trust. There are pros and cons to each option, and Klingenstein Fields Advisors works with your tax expert and attorney to identify the appropriate structure for your situation.

4)     An (e)state of mind. Unmarried couples do not have some of the estate tax advantages available to married couples. For example, if one partner dies, rather than passing to the spouse, the individual estate tax exemption amount applies ($11.7MM for 2021). This means jointly held property is considered part of the deceased’s taxable estate unless the surviving partner has proof that he or she also paid for part of the assets. And, similar to a married couple, planning ahead for potential incapacity (see our recent webinar with elder expert Dr. Mark Lachs on this topic), terminal illness, and the disposition of your estate can help avoid difficult decisions, onerous taxes, and probate court.

5)    Know your parental rights. Co-parenting can be one of the most complex parts of unmarried coupledom. It is critical to spell out one’s rights as a parent in a legally binding way. That ensures some degree of safety and peace of mind in the unfortunate event that either a couple splits up, or something happens to one parent. Specifying a guardian to care for your children in the case something happens to both parents helps to provide comfort that your wishes will be followed. 

Important Disclosures

This material is provided for informational or educational purposes only and should not be construed as investment, accounting, tax or legal advice. Always consult a financial, tax and/or legal professional regarding your specific situation. This communication is not intended as a recommendation or as investment advice of any kind. It is not provided in a fiduciary capacity and may not be relied upon for or in connection with the making of investment decisions. Nothing herein constitutes or should be construed as an offering of advisory services or an offer to sell or a solicitation to buy any securities or a recommendation to invest in any specific investment strategy. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future returns. The views expressed herein are as of a particular point in time and are subject to change without notice. The information and opinions presented herein are general in nature and have been obtained from, or are based on, sources believed by Klingenstein Fields Advisors (“KF Advisors’) to be reliable, but KF Advisors makes no representation as to their accuracy or completeness. Although the information provided is carefully reviewed, KF Advisors cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided. KF Advisors represents two investment advisers registered with the Securities and Exchange Commission: Klingenstein, Fields & Co., L.P. and KF Group, LP. If you are a KF Advisors client, please remember that it remains your responsibility to advise KF Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.