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In the summer of 2004, Cynthia Garnette and Tracey Cramer sold their townhouse in Lorton, Virginia, and moved with their two young sons to Silver Spring, Maryland.

The towns are about 30 miles apart but crossing the Potomac River opened a new world for the couple: the state recognised them as parents of their sons and also their right to make healthcare decisions for each other.

This was a sea change from Virginia, which 2½ years ago passed the Marriage Affirmation Act. On the face of it, the law prevented an array of private contractual arrangements bet-ween same-sex couples and meant Ms Garnette’s healthcare power of attorney, which entitled her to make medical decisions for her partner if she was unable to do so, might be deemed worthless by a hospital.

Like many same-sex couples who cannot marry and heterosexual couples who choose not to, they have had to leverage tax, family and estate laws to gain some of the protections and benefits that their married counterparts take for granted.

In Virginia, for example, the state does not permit second-parent adoption, which allows a same-sex parent to adopt a partner’s biological or adoptive child without terminating the first parent’s legal status as a parent.

Without this, only Ms Garnette’s biological son would be eligible for her social security survivor benefits, which are paid to the spouse and children of a worker who dies. (But neither Ms Garnette nor her partner can collect social security based on the other’s work record as the federal government does not recognise their relationship.)

“Both of my children should be able to inherit from me and benefit from my social security without it being an extraordinary event,” says Ms Garnette, a certified public accountant.

In November, Virginia passed a constitutional amendment banning same-sex marriage and civil unions, joining more than 20 other states that have prohibited the practice. Massachusetts is the only state where same-sex marriage is legal.

“Gay couples who are committed to one another but unable to memorialise it in some way are at a great disadvantage,” says Walter Schubert, founder and chairman of the Gay Financial Network. “It is just so much more laborious and complicated to protect your assets and enter into ownership rights as two individuals as opposed to when you are a couple.”

Many of the legal and financial challenges facing same-sex partners also apply to retirement-age couples who prefer not to marry for financial reasons, and younger couples who opt not to.

According to the US Census Bureau’s 2005 American Community Survey, the number of unmarried couples who live together rose from 3.2m in 1990 to 6m in 2005. In most states, unmarried couples have the same legal status as acquaintances. And that has far-reaching consequences for financial and personal matters.

Janine Racanelli, head of JPMorgan Private Bank’s Advice Lab, says financial issues get “a lot stickier” when a couple is not married, as “the law affords special privileges to relationships recognised as marriage under federal and state laws”. The most prominent of which is the unlimited marital deduction.

One of the biggest benefits of a traditional marriage is that spouses can give each other an unlimited sum tax-free. That means any assets going to a surviving spouse pass tax-free at the time the first spouse dies, as long as the surviving spouse is a US citizen.

As Ms Racanelli explains, the benefit of the marital deduction is that it allows the full value of the assets to be preserved for the survivor. Not so for unmarried couples. Ms Garnette says: “Anything you bequeath to a spouse is exempt from taxation and we won’t have any of this.”

While the wealth accumulated during a marriage is subject to estate tax only once, assets among unmarried couples face double taxation: once at the death of the first partner and again when the second dies.

Tamara Kolz, a partner in the private wealth services section of Holland+Knight, the law firm, says there is no way round the unavailability of the unlimited marital deduction for same-sex couples.

“All you can do is get creative and try to reduce the estate and minimise the resulting taxes. But there is no real substitution for unmarried couples.”

Julius Giarmarco, a partner at Cox, Hodgman & Giarmarco, the law firm, says that even though unmarried couples do not benefit from the deduction, charitable planning techniques can replicate the estate tax consequences of a marital-bypass trust, in which each spouse leaves property, in trust, to the other for life, and then to the children.

This type of trust takes advantage of both spouses’ estate tax exemptions (presently $2m per spouse), saving up to hundreds of thousands of dollars in estate taxes.

One such marital deduction substitute is a testamentary charitable remainder uni-trust, or TCRUT, which can be structured so that its assets will support a partner, and then, at the death of the surviving partner, the property remaining in the trust passes to a named charity. The benefit of this technique, says Mr Giarmarco, is that it may be possible to reduce substantially the amount subject to estate taxes while still permitting the surviving partner to receive payments from the trust.

Unmarried couples are at a distinct disadvantage when it comes to bequeathing their wealth as the inheritance system privileges family relationships.

Each taxpayer can leave up to $2m to anyone other than his or her spouse without incurring any federal estate tax. If an unmarried person wants to leave his or her partner an estate worth more than $2m, taxes would be due on the excess over that amount, though nothing would be due if the couple was married.

But estate planning is not the only area that requires foresight and creativity. For unmarried couples, even buying a home can be complicated as adding a partner’s name to the title deed, for example, could trigger a gift tax.

Ms Racanelli explains: if one partner contributes more than his or her percentage ownership of a jointly owned asset, the amount of that person’s excess contribution cannot be more than $1m over a lifetime (diminished by any other substantial gifts other than charitable contributions), depending on state law. Otherwise, the giver may be subject to a gift tax.

Creating a family limited partnership – in which two partners shift all or some of their assets to an entity, the partnership – is one solution. This reduces the possibility of inadvertent gifting, since the shared assets are owned by the partnership going forward in proportion to each partner’s respective contribution.

Holly Isdale, a managing director at Lehman Brothers and head of its wealth advisory group, says another useful estate planning tool is a grantor retained income trust. This is an irrevocable trust to which the grantor transfers assets while retaining the right to receive all of the net income from the trust assets for a set period. When the trust ends, the remaining principal is either distributed to the beneficiary or held in further trust.

Retirement is another area requiring skilful planning. Until recently, the law did not allow non-spouse beneficiaries of retirement accounts such as a 401(k) plan to roll over the assets into an independent retirement ac-count. Last summer, however, President George W. Bush signed a law enabling non-spousal beneficiaries who inherit certain retirement plan assets such as 401(k)s to roll those assets directly into an inherited IRA, thereby deferring income taxes on the inheritance (See box.)

Financial advisers and tax attorneys say wills are an important consideration as interstacy laws do not provide for life partners. “For a traditional married couple, certain things are ass-umed . . . but for unmarried couples, they have to proactively state how their assets will be divided at death or separation,” says Ms Isdale.

Life insurance can also be problematic because companies typically require a legitimate reason to buy a policy on someone else. An insurable interest is usually considered marriage or a business partnership.

If an insurer refuses to sell a couple a policy, one answer is for each to own a policy and name the partner as the beneficiary.

An irrevocable life insurance trust is a good technique for trying to minimise transfer tax when assets are transferred to a partner, says Ms Racanelli. While life policies generally are not subject to income tax, they are included in the estate of the insured and taxed accordingly. Creating the right type of trust to buy the policy removes it from the estate of the insured.

Another advantage of a trust is privacy as the documents do not go through probate and do not become public court documents. Trusts are also generally harder to challenge in court than wills.

Same-sex couples also need to think about the division of assets and custody of their children should the relationship end. That is when it’s important to have a cohabitation agreement in place.

Ms Kolz says: “When a relationship dissolves, it is not unusual for an alimony requirement or a transfer of property from one partner to another to occur. Because the relationship is not recognised by federal law, alimony is not deductible as it would normally be, and any transfer of property doesn’t fall under the exception of transfers incident to a divorce, so there may be capital gains or gift tax consequences. So even dissolving the relationship is far more complicated and costly than for heterosexual married couples.”

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