[WSBAPT] tax consequences for registered domestic partners

[Kate Szurek]

I have clients in a 17-year relationship who are not married (and not at all inclined to get married).  They have significant wealth, so of course I am concerned about the tax challenges they will face, and benefits they will miss, as a result of not being married.

They are interested in knowing more about registered domestic partnerships, and because one of them is 66, they will qualify.

>From a state law standpoint, I see registered domestic partners are afforded all the state benefits that would adhere were they married.  So the real questions are federal tax law questions.

Because under state law their property can be characterized as community, and because federal law looks to state law to determine character of property, does that not mean their community property would get a full step-up in basis on the first death (set aside for the moment any possibility of estate tax repeal and the potential for new carry-over basis rules)?

What about gifts to one another?  Since they are not married, I do not see how the unlimited marital deduction could apply.

Similarly, on the first death, I do not see any potential for portability of the federal estate tax exemption or for the application of the unlimited marital deduction for bequests from the decedent to the survivor of them.  Correct?

In short, seems to me I need to tell them there are few tax benefits from becoming registered domestic partners.  With the possible exception of step-up in basis, looks to me like the only potential benefit is relative to maintaining any social security or pension benefits that they might lose if they marry.  And that to the extent they convert any separate property to community property they will face gift tax consequences.

Your wisdom will be greatly appreciated!

Kate

Kate Szurek, J.D., LL.M.
kate at skagitlaw.com<mailto:kate at skagitlaw.com>

[SkagitLaw_Signature (2)]
Skagit Law Group, PLLC
P.O. Box 336 / 227 Freeway Drive, Suite B
Mount Vernon, WA  98273
360.336.1000
360.336.6690 (fax)
http://www.skagitlaw.com<http://www.skagitlaw.com/>




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