In 2005, the number of unmarried households surpassed those of married couples in the United States, according to the U.S. Census Bureau. Estate planning for such couples can be significantly more complex than for the typical client, as they require more documents than traditional married couples to address their legal needs. Adding to the confusion, the laws affecting these couples are in flux.

Nonetheless, such couples are a growing percentage of your client base today. In fact, baby boomers are on track to become the fastest-growing group of unmarrieds to protect their benefits and children's inheritances. Advisors should start planning for these clients by uncovering exactly what it is they need.

There are many reasons why couples may choose not to walk down the aisle today. Many opposite-sex couples choose not to marry in order to manage their financial, family, political and religious concerns better. For same-sex couples, on the other hand, it is often not their choice, since they do not have the option of entering into federally recognized marriages.

Two key benefits of single status may also prevent couples from getting hitched. First, the assets of unmarried partners do not count toward Medicaid eligibility. And second, unmarried individuals can collect Social Security based on their deceased spouses' earnings. The soft economy and recent market decline have made people care more about these benefits than ever before, says Peg Downey, partner with Money Plans, a financial planning firm in Silver Spring, Md.

TRICKY TECHNICALITIES

No matter the reason for avoiding their vows, the costs to unmarried couples of inadequate estate planning are high. Sure, the costs can also wallop opposite-sex married couples and single folks, but planning for their unmarried counterparts is significantly more complicated.

This is because in cases of death, disability or the end of the relationship, federal and state governments favor those whom they define by law as members of the same family. A partner—even a same-sex married partner—typically is not considered a family member, although this is beginning to change, especially at the state level (see "The Legalities" below). This means partners could inherit nothing, get socked with higher taxes, be denied access to their hospitalized partner or even lose custody of the couple's children.

Many of these challenges can be managed using wills, trusts and other estate planning methods. Financial advisors should urge their clients to address these issues with attorneys. But advisors' role in estate planning should begin before the lawyers get involved.

A financial advisor's contribution to estate planning starts at the beginning of his or her relationship with the client. Don't assume you're planning only for the person in front of you, says Barry Taylor, a portfolio manager with Bingham, Osborn & Scarborough in San Francisco. "Just because they're not married does not mean they don't have a domestic partner or same-sex relationship," he adds. To help uncover relationships, use neutral language, such as "partner" or "domestic partner" instead of "husband/wife" or "spouse" on new client questionnaires, Taylor advises.

Because of the myriad legal complexities, learning about these couples' assets is even more important than with traditional married clients. Opposite-sex spouses have a claim on the estate if their spouses die without a will. That's typically not true for unmarried and same-sex spouses, although laws vary by state. Instead, defaults favor blood relatives—even if they are estranged.

Proper documentation requires a detailed knowledge of clients' assets. Don't leave research about assets up to estate planning attorneys. Advisors can learn more about their clients' assets than an estate planning attorney who only spends a few hours with them. "Attorneys go through client questionnaires and don't necessarily review a formal financial statement or flow chart of assets," says J.T. Hatfield Smith, vice president of SPC Financial in Rockville, Md.

Common-law marriage survives in few states and has stringent requirements, including holding yourself out as married, so few qualify, says James Tissot, president of Prism Planning in New York City. He remembers a cocktail party where he met a stay-at-home mother who thought she was protected by common-law marriage because she'd lived for years with the children's father. "I said, 'Uh, uh, uh. You get yourself to an attorney right now and get yourself some kind of document.' "

It's also important to know that federal taxation treats unmarried partners and same-sex married couples less favorably than opposite-sex married couples in many ways. For starters, there's no unlimited marital deduction for asset transfers. "A spouse can leave $1 or $100 billion to their opposite-sex spouse without that amount becoming subject to estate or gift tax," says Hatfield Smith. In contrast, unmarried and same-sex married couples' tax-free transfers are limited to $13,000 per year and $1 million over a lifetime by the federal gift tax.