Unmarried couples are pervasive in our society; they are as vast as widows, never married individuals living together, divorcees, and same-sex unions. These couples, whether gay or straight, face important issues that their married counterparts are not exposed to. Unfortunately, many of these issues, if left unattended, can have a dramatic negative impact on healthcare decisions, income taxes, estate taxes and retirement planning. If you are unmarried and are in a committed relationship with a life partner, keep reading! You simply cannot afford to ignore the financial and legal challenges that you and your partner are exposed to.

The U.S. Census Bureau reports that the once dominant "married couple" households have slipped from nearly 80% in the 1950s to just 50.7% today. Nearly 42% of the U.S. workforce consists of unmarried individuals. The decision to not marry can stem from a variety of reasons incluidng the possible loss of deceased or divorced spouse's benefits to impenetrable legal barriers for same-sex couples. In fact, many widows and divorcees, despite having found love again, cannot afford to remarry for fear of losing health, pension or social security benefits.

Real World Challenges

Retirement Benefits
One of the benefits of a qualified retirement plan is the ability to defer income taxes until forced distributions begins begin at age 70 ½, for both the account owner and their surviving spouse. That deferral benefit, however, does not equally apply to a non-spouse benefiary. Here's how:

For qualified plans (ie. 401k, 403b, unless the proceeds are annualized over the beneficiary's life starting within one year of death, they must be included as taxable income within five years of death (a surviving spouse is allowed to defer proceeds and taxation until age 70 1/2). This shrinks the pot and potential growth of the qualified money for the surviving partner (assuming the partner is the beneficiary).

IRA accounts offer a little bit more flexibility. Inheriting an IRA from a spouse allows you to put the IRA in your name or roll over the funds into an IRA you have already set up. The IRS will treat this as if the inherited IRA assets were yours all along. Conversely, non spouse heirs do not have the option of treating inherited IRAs as your own. This does not imply that the money is not yours; it simply means that you cannot make any contributions to that IRA or roll it over to another IRA. If the decedent was age 70 ½ or greater (and taking distributions out of the IRA when he/she died), then you may start taking money out using the same distribution method. If the beneficiary is younger than the decdent, this option is typically not recommended, unless you desperately need the money since it will accelerate your income and taxes. The other alternative would be to take the required distributions in annual installments over the beneficiary's lifetime, and based on the beneficiary's life expectancy (not the decedent's).

If the decedent was not yet taking distributions out of the IRA, you have two IRA distribution options:
• All of the interest from the IRA must be distributed to you by December 31st of the fifth year after the year the decedent died, (not the best choice) OR
• All of the interest must be distributed over your life expectancy (preferable option)

Government and corporate pensions are the least flexible of all. In an employer sponsored pension plan, the surviving partner may not be entitled to any survivor benefits. You are encouraged to confirm whether or not this is available with your HR manager. Social Security spousal benefits are simply not available to non-spouses--period. The consequence is that your partner will be forced to accumulate more funds in order to ensure a comfortable retirement after you are gone.

Taxes
Unmarried couples are also negatively affected with respect to estate taxes. There is a special provision in the tax law that allows married couples to defer estate taxes until after the second spouse dies. Unmarried couples do not get to benefit from this unlimited marital deduction. So, any assets (including home, car, savings, retirement accounts, collectibles, etc) above $2,000,000 are subject to taxation rates as high as 47%!

Asset Transfers
As an unmarried couple, dying without a will and other related estate planning documents is a recipe for disaster. Without a clearly defined will, your partner may inadvertently get disinherited. Unlike with married couples, surviving partners do not automatically have a share in the estate. If you die intestate (without a will), the estate will pass under state intestate succession laws and the estate assets, including maybe your primary home, will likely be transferred to the blood relatives (surviving parents, siblings, etc)!

Basic Solutions for Asset Transfers at Death
One of the best ways to ensure an efficient transfer of assets from one unmarried partner to another is through a combination of wills, will substitutes and trusts. Failure to plan for this is planning to fail.

Wills
The most widely recognized means of transferring wealth at death is by use of a will. Without knowing the details of exactly what happens, most people know that a will must be presented to the local probate court. If a will does not properly dispose of a deceased individual's assets, then the probate court gets involved in distributing that person's assets, a process that can be both costly and time consuming.

Will Substitutes
The will substitute has the advantage of avoiding the probate process and the related cost, delay, and potential publicity. It also has the advantage of allowing the current owner of property to name the person or persons who are to receive the owner's interest at his or her death. Will substitutes are revocable and include common forms of ownership like "joint with rights of survivorship", beneficiary designations (for retirement accounts), transfer on death clauses (for investment or brokerage accounts), payable on death clauses (for bank accounts) and revocable living trusts. It is always best to consult with a qualified professional for any gift or tax consequences that these strategies may cause.

Living Trusts
A revocable living trust is almost always established for two reasons: (1) to avoid probate; and (2) to handle the grantor's financial affairs in the event of the grantor's incapacitation. Since such a trust cannot accomplish any tax objectives and provides no asset protection, income from the trust assets is taxed to the grantor under the grantor trust rules. No gift tax is due upon funding the trust because the retained right to revoke prevents a completed gift. Likewise, the retained right to revoke also means that the trust assets are included in the grantor's gross estate.

Life Insurance Trusts
A life insurance policy for the benefit of a surviving partner can help supplement future income lost from forced distribution from a qualified plan, the inability to receive spousal social security benefits and pension survivor benefits. Furthermore, using an irrevocable life insurance trust (ILIT) can remove the life insurance policy out of the estate. You must make sure that you do not own the policy when you die. The proceeds can go to the same beneficiary but the policy must be owned by the trust. If a policy is transferred, the transfer must take place within three years of death. An ILIT can also help provide the liquidity necessary to help pay estate tax and settlement costs incurred by the deceased partner's estate.

Healthcare Planning Necessities
Finally, non-spouses, in the event of disability or incapacitation, do not have automatic rights to the care and finances of the disabled partner. The following are some of the "must haves" in order to ensure that you and your partner can make medical and financial decisions for one another.

Living Will
A living will stipulates what life-saving medical procedures you want or don't want in the event you are physically or mentally incapacitated. The Terry Schiavo case shed important light on this controversial issue. If you and your partner have an understanding of what your end-of-life medical planning should be, it must be memorialized in a legal document. Otherwise, your partner's wishes may be overwritten by his or her family, since you are not legally related to your partner.

Medical Power of Attorney
A medical power of attorney appoints a person the power to make medical decisions on your behalf. What are the consequences of not having this document? Let's say that your partner of ten years is hospitalized, as a "non family" rember you may be prohibited from visiting your partner or discussion your partners medical condition with his/her healthcare professional. Instead, an immediate family member like a parent or sibling may be the only ones privy to discussing medical information with your doctors-not your partner.

Financial Power of Attorney
A financial power of attorney states who can make financial decisions on your behalf. A medical power of attorney does not dictate who and how your finances will be handled in the event you are disabled. Both must work alongside one another to ensure that you and your partner are cared for, both physically and financially.

Financial Planning Musts for Unmarried CouplesThose Britons looking to get married should plan their finances with care, it has been suggested.

According to Francesca Moore, spokesperson for Hitched, many consumers have "become very materialistic" in regards to tying the knot, with the total costs of getting married, holding a reception and going on honeymoon reaching thousands of pounds. The wedding planning service representative added that although the credit crunch might see some couples delay a ceremony or honeymoon to help save more money, those who are determined to get married will find that "one way or another it will happen". Overall, the average wedding was indicated to cost around 17,800 pounds, with many ceremonies noted as being worth between 17,000 and 18,000 pounds.

However, upon planning a wedding, consumers were urged to ensure that one of the first things that they do is to draw up a budget. In doing so, it was suggested that couples will be able to recognise what areas their money will go towards and how much they can afford for costs such as rings, venue hire and wedding dresses.

Ms Moore said: "With so many different options for weddings, the possibilities really are endless and brides and grooms can plan and save for their perfect day for years in order to make it exactly what they want. With celebrity influence and a plethora of options for different parts of the wedding such as the dress, cake and venue, people are willing to wait months or maybe years to make their day perfect and unique for them."

For those looking for a competitive way to finance both the wedding and honeymoon of their dreams, a personal loan might prove to be of assistance.

In addition, all those who are currently looking to get married were urged to take out a wedding insurance policy. By selecting such cover, it was claimed consumers may be able to protect themselves from unforeseen events such as the loss of rings or the venue cancelling. Pointing out that "no one can predict what might happen on the big day", Ms Moore claimed that in comparison to other expenses related to getting married such insurance is "actually a minimal spend with probably the highest value".

For those loved-up consumers who are looking to fund the wedding of their dreams, taking out a personal loan might prove to be of assistance. By getting a loan, it may be possible that borrowers can meet various marriage expenses, ranging from rings and venue hire to going on honeymoon and purchasing a wedding dress, quickly and effectively. In addition, the monetary assistance that a cheap personal loan provides could help couples to generate enough income to purchase a comprehensive wedding insurance policy.

Applying for a loan might be of additional help after a recent study by Alliance & Leicester Personal Loans revealed that Britons are underestimating the cost of getting married. Figures released by the firm showed that people think that the average wedding ceremony costs 1,759 pounds, although in reality it is about 1,000 pounds above this figure. Meanwhile, a honeymoon is thought to be worth 4,788 pounds. However, this actually comes to 7,725 pounds. Overall, consumers are shown to be underestimating the total cost of getting wed by over 3,000 pounds. Richard Al-Dabbagh, head of personal loans for the firm, pointed out that due to such miscalculations a cheap loan can be a "sensible way" to finance getting hitched