Many couples build lives together without getting married. While this arrangement can work well in many aspects, estate planning for unmarried couples presents unique challenges.
Unlike legally married partners, common-law spouses don’t automatically have certain legal rights and protections.
This scenario makes proper estate planning even more crucial for ensuring that you provide for your partner and that the court carries out your wishes in the event of your incapacity or death.
Understanding the Legal Landscape
The first step in estate planning for common-law spouses is understanding that, in the eyes of the law, you’re considered unrelated individuals. It means that without a proper estate plan for unmarried couples, your partner may have no legal right to:
- Inherit your assets
- Make medical decisions on your behalf
- Access shared accounts or property
- Receive government benefits that married couples are entitled to
With this in mind, let’s explore the critical components of a comprehensive estate plan for couples in common-law relationships.
Wills and Trusts
A will is a fundamental document specifying how you want your assets distributed after death. It is essential for unmarried couples because, without one, the courts will typically distribute your assets to your legal next of kin (usually blood relatives) according to your state’s intestacy laws.
Consider creating a living trust in addition to a will as part of the unmarried couple estate planning. A trust can offer several advantages:
- It allows for more control over how and when the courts distribute your assets
- This document can help avoid the time-consuming and potentially costly probate process
- It also provides privacy, as trusts don’t become public records like wills do
When setting up these documents, be as clear and specific as possible about your wishes to minimize potential challenges from family members who may disapprove of your relationship.
Power of Attorney
A power of attorney (POA) document grants someone the authority to represent you in financial and legal matters if you become incapacitated. This kind of estate plan for unmarried couples is crucial because your partner won’t automatically have this right.
Here are the types of POA to consider:
- Durable Power of Attorney: This document remains in effect if you become incapacitated.
- Springing Power of Attorney: It only takes effect under specific circumstances, such as if you’re declared mentally incompetent.
Healthcare Directives
Advance healthcare directives are vital for respecting your medical wishes and allowing your partner to make healthcare decisions on your behalf if necessary. Two key documents are:
- Living Will: It outlines your preferences for end-of-life care and other medical treatments.
- Healthcare Power of Attorney: This PAO designates someone (ideally your partner) to make medical decisions if you cannot.
These unmarried couples’ estate planning documents require healthcare providers to turn to your legal next of kin for decisions, potentially excluding your partner entirely.
Beneficiary Designations
Assets like life retirement accounts, insurance policies, and certain bank accounts allow you to name beneficiaries directly. These designations typically override instructions in a will, so keeping them up to date is crucial.
Naming your partner as a beneficiary on these accounts ensures they receive these assets without going through probate.
Property Ownership
How you own property with your partner can significantly impact what happens to it upon your death. Consider these options:
- Joint Tenancy with Right of Survivorship: This real estate agreement for unmarried couples allows the surviving common-law spouse to inherit the deceased partner’s share of the property automatically.
- Tenants in Common: Each partner owns a distinct share they can leave to anyone in their will.
- Transfer on Death Deed: It allows you to name a beneficiary for real estate, similar to a beneficiary designation on a bank account.
Talk to a legal professional to know and adapt the best ownership structure for your situation.
Tax Considerations
Common-law spouses don’t benefit from the same tax advantages as married couples regarding estate planning. For instance, there’s no unlimited marital deduction for estate taxes. However, there are still strategies you can use to minimize estate tax for unmarried couples:
- Gifting: You can give up your partner’s annual exclusion amount (currently $18,000) tax-free per year.
- Life Insurance: Proceeds from life insurance are generally tax-free to the beneficiary.
- Charitable Remainder Trusts: These can provide income to your partner during their lifetime while benefiting a charity and potentially reducing estate taxes.
Cohabitation Agreements
While not strictly part of estate planning, a cohabitation agreement can help you protect your rights. This document, similar to a prenuptial agreement, can outline how you’ll handle finances and property during your relationship and in the event of a breakup.
It can also express the intended estate plan for unmarried couples, strengthening your other estate planning documents if someone challenges them.
Regular Review and Updates
Remember that estate planning is not only a one-time affair. Hence, it’s essential to review and update your plan regularly, especially after the following events:
- Purchasing a home
- Having children
- Experiencing a significant change in financial situation
- Changes in your relationship status
A rule of thumb is to review your estate plan every three to five years or whenever a significant life change occurs.
Seeking Professional Help
While it’s possible to create some estate planning documents independently, unmarried couples’ unique challenges make professional guidance particularly valuable.
Consider seeking counsel from an attorney with experience in unmarried couple estate planning. They can help ensure your documents are legally sound and truly reflect your wishes.
Additionally, talking with a financial advisor can help you navigate the economic aspects of estate planning, including tax implications and strategies for asset transfer.
Secure Your Partner’s Future With Cristy
Cristy J. Carbón-Gaul understands that creating a comprehensive estate plan with wills, trusts, powers of attorney, healthcare directives, and thoughtful beneficiary designations can provide security and peace of mind for you and your partner.
Remember, laws vary by state and can change over time, so staying informed and regularly reviewing your estate plan is crucial.
We can help in estate planning for unmarried couples. Together, let’s provide the same protection and care for your partner as married couples.