Recent columns presented estate planning for single individuals (widow/widower, divorced, or never married) and estate planning for legally married couples.
This column presents estate planning for individuals who are in a committed but legally unmarried relationship.
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How the Legal Relationship Between Married Couples and Unmarried Couples Differs
A marriage between two individuals creates an automatic legal relationship with corresponding rights and protection. Individuals in an unmarried relationship receive no automatic legal recognition, regardless how long the couple has been together, or the extent of their commitment to each other.
For unmarried couples, everything with respect to their relationship must be formally documented. Without this formal documentation, an unmarried partner may have:
• No inheritance rights without a will or trust.
• No authority to make medical decisions without healthcare directives.
• No access to partner’s retirement accounts.
• No survivor benefits from Social Security, and
• No access to partner’s bank and brokerage accounts without being named as an agent on durable financial power of attorney.
Some states offer limited protections through domestic partnerships civil unions. However, these protections rarely approach the protection of marriage.
Specific Housing and Property Issues that Unmarried Couples Need to Address
Without proper planning, a surviving partner may lose his or her interest in shared property between two unmarried partners. This could happen if only one partner’s name appears on the property deed, even if both partners financially contributed to the property purchase. In other words, the surviving and unmarried partner has no automatic right to inherit or continue living in the property.
The following are key points and steps for unmarried couples to consider with respect to housing, property and financial issues:
• Title and ownership documentation. The following are arrangements that will facilitate the transfer of housing and property ownership when the first partner dies: (1) Joint tenancy with rights of survivorship; (2) Tenants in common with corresponding will provisions; (3) Transfer on death deeds; and (4) Property ownership through a revocable living trust.
• Document contributions. For property legally owned by one partner, it is essential to establish clear documentation of the other partner’s contributions to that property in order to support potential claims to the property, should that occur.
• Create cohabitation agreements. Cohabitation agreements are contracts that can explicitly state intentions regarding property rights, including provisions for death of one or both partners.
• Secure life insurance policies to pay off mortgages or to buy out the interests of a deceased partner’s heirs.
• Unmarried couples and financial entitlements. Unmarried couples do not have access to numerous benefits that married couples automatically receive. These benefits include Social Security survivor benefits, automatic beneficiary status for qualified retirement plans and pension plans, and limited rollover options for inherited IRAs.
Unmarried couples cannot take advantage of certain tax benefits including the unlimited married deduction for gift and estate tax purposes, and they cannot file a joint tax return.
Unmarried couples can address these gaps by ensuring proper beneficiary designations on all accounts in which a beneficiary designation can be made. They should also consider increasing their life insurance coverage to take the place of pension survivor benefits and Social Security survivor benefits.
Unmarried Couples and Healthcare Decision Rights
Without the proper documents, unmarried couples may be excluded from visiting loved ones in hospitals, the right to receive medical updates, or to participate in any healthcare decisions. The following are essential documents that each partner should have:
• Healthcare power of attorney. This document designates who makes medical decisions during incapacity. Without this document, hospitals and other medical facilities typically turn to next-of-kin rather than a partner.
• HIPAA authorization. This document allows healthcare providers to share protected health information with designated individuals.
• Living will/advance health care directive. This document outlines end-of-life preferences, and
• Hospital visitation authorization. This document ensures visitation rights, especially in emergencies.
It is important that both partners carry copies of these documents in their vehicles, keep digital copies of the documents on their phones, provide copies to primary care physicians, make sure that each partner knows where these documents are located, and review/update these documents regularly particularly if the partners relocate to a different state.
What Estate Planning Documents Should Each Partner of an Unmarried Couple Have?
Because state intestacy laws typically do not provide for an unmarried couple, each partner should have their own estate plan which include the following documents:
• Will or living trust. A will provides legally binding instructions for property distribution. A revocable living trust can accomplish the same thing, except that a revocable living trust is harder to challenge than a will. This is especially important if family members of one or both partners want to challenge the distribution of assets.
• “Pour-over” will. A “pour-over” will can ensure that assets not included in a living trust will be “poured-over” to the trust after death of the partner who created the trust.
• Durable financial power of attorney. This allows partners to manage financial affairs should either partner becomes incapacitated.
• Beneficiary designations. A beneficiary designation supersedes the will provisions. Beneficiary designation may be made for retirement accounts, such as the TSP, IRAs, life insurance policies, bank and brokerage accounts.
• Stand-alone trusts. Stand-alone trusts provide ongoing support for partners while preserving assets for children from previous relationships.
• Life estates. A life estate allows a surviving partner to remain in a shared home after the death of the other partner. Upon the death of the surviving partner, ownership of the shared home transfers to heirs of the partners.
Since estate plans for unmarried couples face intense scrutiny and challenges from family members such as children born out of previous relationships, it is important for each partner to make proper documentation of intent, in well-defined language when it comes to developing their estate plans.
Each partner of an unmarried couple is advised to seek advice on their estate plan, including the writing of all legal documents from an estate attorney who practices law in the partners’ residence state.