Inheritance tax for unmarried couples works very differently than it does for spouses, and almost every difference cuts against the surviving partner. There is no unlimited marital deduction, no portability of the federal exemption, no automatic 50/50 split on jointly owned property, and in five states the surviving partner is taxed at the highest bracket the state imposes. Nothing about the length of the relationship, shared children, or shared finances changes that. What follows is what unmarried couples actually face and the planning moves that close the biggest gaps.
The Tax Break You Don’t Get
Federal law lets an estate deduct the full value of anything passing to a surviving spouse, with no dollar cap.1Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse A spouse can inherit $50 million and owe zero federal estate tax on the transfer. The code defines this deduction around a “surviving spouse,” and cohabitation doesn’t qualify. When an unmarried partner inherits, the IRS treats the transfer the way it would treat a bequest to a friend, and every dollar above the personal exemption is potentially taxable at rates up to 40%.2Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
The federal exemption for 2026 is $15 million per person, a permanent figure set under the One Big Beautiful Bill Act, with future inflation adjustments.3Internal Revenue Service. Frequently Asked Questions on Estate Taxes That’s high enough that most unmarried couples won’t owe federal estate tax at all. The trap is portability. A married person who dies without using their full exemption passes the leftover to the surviving spouse, letting a couple shelter up to $30 million between them. The regulation limits portability to a “surviving spouse.”4eCFR. 26 CFR 20.2010-3 – Portability Provisions Applicable to the Surviving Spouse If one unmarried partner dies with a $3 million estate and the other later dies with a $20 million estate, the first partner’s unused $12 million in exemption simply disappears. The wealthier partner’s estate still owes tax on $5 million.
The Five States That Tax Unmarried Partners Hardest
Five states impose an inheritance tax where the rate depends on the recipient’s relationship to the deceased: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Spouses and close family members pay little or nothing. Unmarried partners are classified as unrelated persons and face the top rates, which reach 15% to 16%, with very small exempt amounts. In some cases the exemption for a non-relative is as low as $500 before the tax starts.
That’s where the married-versus-unmarried gap bites hardest for middle-class households. A modest $200,000 inheritance can generate a state tax bill of $25,000 to $30,000 for a surviving partner when a spouse in the same state would owe nothing. A couple with a combined estate well below the $15 million federal threshold can still get hit for five figures at the state level, purely because of the missing marriage certificate.
State Estate Taxes on Top of That
Roughly a dozen states and the District of Columbia also impose a separate estate tax, with thresholds far below the federal level. Some start as low as $1 million. State estate taxes apply to the estate itself rather than to individual heirs, so the relationship of the beneficiary doesn’t directly change the rate. But the marital deduction still matters here: a married person can pass everything to a spouse without triggering the state tax, while an unmarried person’s estate starts counting against the threshold from dollar one. Rates on the highest brackets run about 10% to 16%. Where a state layers an inheritance tax on top of an estate tax, the combined burden on an unmarried survivor can be significant.
How Jointly Owned Property Gets Taxed
Many unmarried couples hold a home or bank accounts as joint tenants with right of survivorship, so the asset passes automatically to the survivor outside probate. The valuation rule is where the problem starts. For non-spouse joint tenants, the full value of the property is included in the estate of the first owner to die, unless the survivor can prove they contributed their own money toward buying it.5Office of the Law Revision Counsel. 26 USC 2040 – Joint Interests Without that proof, a $600,000 house owned jointly gets added to the deceased partner’s estate at the full $600,000, even though the survivor already owns half. Married couples get an automatic 50/50 split regardless of who paid.
That means documentation matters years before anyone dies. Keep bank statements, canceled checks, and mortgage records showing both partners’ contributions. If you split the down payment and payments equally but never kept records, the IRS default is to include 100% in the estate of the first to die.
Step-Up in Basis
Inherited property gets a new tax basis equal to its fair market value at the date of death, wiping out capital gains that built up during the deceased owner’s lifetime.6Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent For an unmarried surviving joint tenant, only the portion actually included in the deceased partner’s gross estate gets that step-up. Prove you paid for half, and only the deceased’s half is stepped up. Married couples in community property states get a full step-up on both halves. Unmarried couples don’t have access to that in any state, which can matter a lot when the survivor eventually sells.
Lifetime Gifts to Shift Wealth
Giving assets away during life is the most direct way to shrink a taxable estate. The IRS lets each person give up to $19,000 per recipient per year with no gift tax and no impact on the lifetime exemption.7Internal Revenue Service. Gifts and Inheritances An unmarried couple can use this to move wealth to each other over time. Ten years of maximum annual gifts is $190,000 out of the taxable estate.
Larger gifts count against the $15 million lifetime exemption but are still removed from the estate, and there’s no waiting period that pulls completed gifts back in later. One caveat is decisive: if you give away property but keep using it, the IRS treats the transfer as incomplete and pulls the full value back into your estate at death.8Office of the Law Revision Counsel. 26 USC 2036 – Transfers With Retained Life Estate Putting the house in your partner’s name while you both keep living in it doesn’t work.
Paying Medical Bills and Tuition Directly
Payments made directly to a medical provider or educational institution on someone else’s behalf are entirely exempt from gift tax, with no dollar limit, and they don’t touch the $19,000 annual exclusion or the lifetime exemption.9eCFR. 26 CFR 25.2503-6 – Exclusion for Certain Qualified Transfers The tuition exclusion covers only tuition itself, not books, room and board, or supplies. The medical exclusion covers treatment, diagnosis, health insurance premiums, and related transportation. Write the check to the institution, not to your partner. Send it to the partner first, and it counts as a regular gift.
Life Insurance and Trusts
Life insurance proceeds paid to a named beneficiary skip probate and are generally free of income tax. But if the deceased owned the policy, the death benefit is pulled into the gross estate for estate tax purposes. For unmarried couples with estates large enough to trigger federal or state tax, that inclusion can create a surprise bill.
The standard fix is an irrevocable life insurance trust. When the ILIT owns the policy, the trust is both the owner and the beneficiary, so the deceased never owned it and the proceeds stay out of the taxable estate. The trust then pays out to the surviving partner under its terms. This tool works the same for unmarried and married couples, which makes it one of the few pieces of estate planning where the marriage question is neutral. Setting it up requires an attorney and typically costs a few thousand dollars, but at state inheritance tax rates of 15% or more, the arithmetic usually favors doing it.
Why a Will Is Not Optional
Every state’s intestacy laws exclude unmarried partners entirely. Without a will, the estate goes to children first, then parents, then siblings, then more distant relatives. A partner of 30 years receives nothing under those rules. The survivor can sometimes bring a court claim for a share of the estate by proving financial dependence or unjust enrichment, but the process is expensive, uncertain, and drawn out. A basic will avoids the whole problem and costs a small fraction of a contested probate.
Check your beneficiary designations too. Retirement accounts, life insurance policies, and payable-on-death bank accounts pass by beneficiary form, and those forms override the will. An outdated designation naming a parent or an ex can wipe out everything else you’ve planned.
Common Law Marriage: A Narrow Exception
A handful of states recognize common law marriage, which can grant full spousal status, including the marital deduction, without a license or ceremony. Those states are Colorado, Iowa, Kansas, Montana, New Hampshire, South Carolina, Texas, and Utah, along with Rhode Island and Oklahoma through case law.10National Conference of State Legislatures. Common Law Marriage by State Requirements vary but generally include mutual intent to be married, cohabitation, and holding yourselves out publicly as spouses.
Relying on this for tax planning is risky. The IRS can challenge the claim, and proving the marriage after one partner has died is much harder than proving it while both are alive. Couples who genuinely meet the requirements in a recognizing state should document their status now, with joint tax returns, shared last names, and affidavits. Everyone else should plan as though the marital deduction does not exist, because for them it doesn’t.