Whether you choose to get married or not is a decision you must reach with your romantic partner. If you decide to avoid the nuptials, you and your partner should strongly consider estate planning for unmarried couples.
Regardless of why you and your partner have opted against marriage, that decision can still affect your lives long-term. Being proactive will help you minimize and even avoid those consequences. You can take steps to secure your quality of life long-term without the benefits of marriage.
Take this opportunity to learn more about estate planning for unmarried couples. Discover what it entails by continuing with the rest of this article.
What Are the Estate-Related Challenges Faced by Unmarried Couples?
Getting married allows the two individuals involved in the union to take advantage of useful benefits. For instance, you can take family leave to care for your ailing spouse or bereavement leave if they pass away. A spouse may also receive financial benefits from their partner’s employer.
You will likely miss out on those benefits by avoiding marriage. There are other challenges unmarried couples must acknowledge to prepare better for the future.
The Loss of Marital Deduction
For example, married couples can use the legal mechanism known as marital deduction to avoid short-term tax obligations. A spouse can transfer assets to their partner without paying gift or estate taxes using marital deduction. According to the Legal Information Institute, there is no limit to marital deduction, and it covers nearly all types of property.
The spouse receiving the assets will only need to worry about estate taxes down the line.
Opting against marriage means you cannot take advantage of the marital deduction. There are ways to minimize your tax obligations without marital deduction, but losing that tool can make your tax situation a bit trickier.
The Loss of Control over Healthcare-Related Matters
If your partner falls sick, you likely want to stay by their side as much as possible. You want to be there so you can tend to their every need during their moment of weakness.
A spouse has the right to be with their partner who is confined in a medical facility. They can even ask the doctor specific questions about their partner’s condition and expect to receive a response.
Unfortunately, you will lose those rights as an unmarried romantic partner. You may be unable to visit your partner depending on their condition, and making medical decisions on their behalf is out of the question. Additional arrangements must be made if you want more control in that situation.
The Loss of Access to Assets in Their Deceased Partner’s Estate
The sudden loss of your partner is a difficult experience under any circumstances. Your sense of loss may be magnified once you realize the ramifications of their untimely passing.
Because you and your partner were not married, you do not have any rights to claim the assets in their estate. Or at least that would be the case if the two of you failed to draw up an estate plan beforehand.
Per New York State’s intestate succession laws, your deceased partner’s children, parents, siblings, and other relatives may have a stronger claim to their estate than you do. They would be the ones benefiting from your partner’s estate regardless of the relationships they had beforehand. You do not have the right to withhold assets from them even if you know that your deceased partner had no intention of giving them anything. You may only retain ownership of some joint assets following your partner’s passing, but that is it.
Estate planning for unmarried couples will prevent that scenario.
What Are the Estate Planning Tools and Strategies That Can Help Unmarried Couples?
As you can tell, remaining unmarried can make money and healthcare management significantly more complicated. Does that mean you should give in and get married to claim useful benefits? That is a question only you and your partner can answer. However, careful estate planning can mitigate many of the issues that may plague unmarried couples.
In this section of the article, we will highlight the estate planning tools and strategies that unmarried couples should consider using. Go through each item and see how it could work for your specific situation.
Create a Detailed Will to Outline Your Wishes
First off, unmarried partners should consider creating wills. A will details how a decedent wants their assets managed and distributed following their passing. The probate process ensures that the decedent’s wishes are followed.
The will is a powerful tool whether you are married or not. You can use it to leave assets behind to your partner without worrying that laws will get in the way. Remember to provide detailed instructions so no one can contest your partner’s claims.
Wills can be used to distribute different types of assets. Use it to leave a specific sum of money to your partner or grant them complete ownership over the home you were living in. You can even gift ownership of your investments to your partner using a will.
Although we are focusing mainly on how unmarried couples can use wills for estate planning, these instruments can also benefit your other loved ones. Mention which assets you want to give your children, parents, or siblings via your will, so they are not left empty-handed.
Creating an accurate will is a must if you want the assets in your estate to be appropriately distributed. Work with a will lawyer while drafting that document to ensure it correctly details your wishes.
Set Up a Trust to Shield Your Assets from Taxes
We mentioned earlier that unmarried couples cannot use marital deduction when managing their assets. Without that, they lose a tool that can help them bypass estate taxes. There is no exact replacement for the marital deduction that unmarried couples can utilize. However, they can still lighten their tax obligations by establishing a trust.
A trust is an estate planning tool that serves as a receptacle for a trustor’s assets. The assets will remain inside the trust until certain conditions are met and can be distributed to their rightful owners.
Many individuals use trusts for estate planning because they are not subject to probate. Setting up a trust is highly recommended if you want your beneficiaries to receive assets from your estate as soon as possible following your passing. Trusts also keep your estate private.
Once you transfer ownership of an asset to a trust, it is no longer your property. Because of that, the asset in question will no longer be subject to estate taxes. You can use trusts to preserve your assets and ensure that your heirs get more value out of them.
It may not perfectly replace the marital deduction, but it can lighten your tax burdens.
Establish a Joint Tenant with Right of Survivorship for Some of Your Assets
The sudden passing of your partner may cast doubt on who owns the assets they left behind. Without a will or trust in place, you may have difficulty fending off claims made by their blood relatives. You can put those worries to rest by establishing joint tenants with right of survivorship over the assets you own as a couple.
For those unfamiliar with the term, joint tenants with right of survivorship is a type of ownership setup wherein the surviving co-owner automatically assumes full ownership of an asset after their co-owner dies. This ownership structure may include two or more people.
According to NerdWallet, joint tenants with right of survivorship can cover different assets. These assets include real estate properties, vehicles, and bank accounts. However, you cannot use this legal tool to transfer ownership of retirement accounts to your partner.
Many unmarried couples prefer taking ownership of assets using this mechanism because it simplifies matters in the present and long term. It is worth a closer look if you and your partner plan to make a big purchase.
Change the Beneficiaries for Your Retirement Accounts
In the previous entry, we noted that you cannot use joint tenants with right of survivorship to transfer ownership of your retirement accounts to your partner. So, how should you handle your retirement accounts if you still want them to eventually end up with your partner? The solution to that problem is pretty straightforward.
You only need to change the beneficiaries for your retirement accounts. Typically, you can amend your retirement accounts by contacting the companies that manage them. Let them know about the new beneficiaries you want to name, and they should quickly implement the changes.
Keep track of your beneficiaries to ensure they reflect your wishes.
Decide on a Comprehensive Cohabitation Agreement
A cohabitation agreement is one of the most helpful estate planning tools for unmarried couples. If you have never heard of it before, a cohabitation agreement is a document that outlines the rights and obligations of each party involved. Think of it like a rulebook that you and your partner must follow.
Cohabitation agreements are supposed to be comprehensive.
For instance, it should cover the financial obligations you owe each other. The document should indicate which monthly bills both parties are obligated to pay. If one partner fails to meet their obligations, they may be subject to penalties down the line.
The cohabitation agreement should also outline how assets will be divided in the event of a break-up. You may be willing to give up your stake in your home if you get the car and complete ownership of some bank accounts. Regardless of what setup you have in mind, it should be indicated in the cohabitation agreement.
Some financial obligations may also outlast your relationship. In that case, you and your partner should decide how you want to handle those obligations and encode the details in the cohabitation agreement.
Given how much power a cohabitation agreement may wield, you must create one with the help of an attorney. Let them review the document to check if you are getting a fair deal.
Grant Power of Attorney to Your Partner
Thus far, the tools and strategies we have highlighted in this article should help you sort out financial matters involving your partner. However, they still do not address the issues related to your healthcare. If you want to give your partner some semblance of control over your health matters, you need to grant them power of attorney.
Power of attorney is a legal right you grant another person if you want them to make decisions on your behalf. The power of attorney document will outline the rights you confer to your partner. Your partner can then exercise those rights to act in your best rights. Of course, the document will still limit the extent of what they can do.
Since we are talking about healthcare-related matters, you specifically want to draw up a medical power of attorney document. This document is also known as a healthcare proxy in New York State.
Armed with that document, your partner can now speak to your healthcare provider if you end up in the hospital. They can also make decisions regarding your healthcare if you authorize them to do so.
Generally speaking, healthcare proxies are not in effect all the time. Instead, they will only be recognized when certain events occur. You can write the document in such a way that your partner will only be granted power of attorney if you sustain specific disabilities. A healthcare proxy is also likely to take effect if the person who granted it becomes incapacitated.
Considering the rights they confer, power of attorney documents must be crafted carefully. Avoid drafting this document by yourself. Seek guidance from an expert estate planning attorney, as they will watch out for your best interests.
Estate planning is a necessary undertaking for both married and unmarried couples alike. Without a good plan in place, an unexpected occurrence can spell disaster for you or your partner. Contact us at Alber Law Group today, and we will help put together your estate plan. We will help draft the documents you need so you can effectively protect your estate!