Estate planning for Single or Unmarried Couples: Seven Steps to Take
Estate Planning For Single Or Unmarried Couples
Estate planning for single or unmarried couples is a crucial undertaking that often gets overlooked in the mainstream discussions about estate planning. Avoiding common planning pitfalls among unmarried or cohabitating couples is fundamental to secure shared assets and savings goals. It includes maintaining decision-making authority for each other, especially in situations that require a health care directive.
From the sad experiences of many unmarried partners, it’s clear the law doesn’t automatically provide the same benefits that married couples enjoy. However, with a carefully drafted robust estate plan, it’s possible to shield yourself and your partner with protections akin to those enjoyed by married couples. This includes understanding the implications of the right of survivorship, the use of prenuptial agreements similar to those in ‘living together’ arrangements, being aware of the estate exemption amount, and navigating appropriate gift exemption amounts to curb excessive taxation.
Essential Estate Planning Steps For Unmarried Couples
To protect your relationship in the face of the law, you and your partner should consider taking these essential steps:
- Consult an Attorney: Engage an attorney familiar with non-traditional family structures and estate planning. A suitable lawyer will help you draft a comprehensive cohabitation agreement, analogous to a prenup for married couples.
- Discuss Uncomfortable Issues: You need to have open discussions about potential disability and death scenarios. It’s essential to align on issues around healthcare decisions, wealth allocation, and inheritance.
- Develop an Estate Plan: Work with a skilled estate planning attorney to create a plan that best aligns with your objectives and wishes. This document will guide the disbursement of your assets upon your passing.
- Understand Tax Implications: Unlike married couples, singles do not get certain tax deductions, especially concerning inheritance. Ensure you understand the tax implications and plan accordingly.
- Determine Asset Ownership and Beneficiaries: It is critical to correctly title your assets and determine the beneficiary designations to conform with your estate plan.
- Execute Durable Power of Attorney: This legal document allows you to appoint your partner to handle your financial matters if you’re unable or unavailable.
- Set Up Medical Power of Attorney: This document gives your partner the right to make health-related decisions on your behalf if you can’t.
Create A Durable Power Of Attorney
Creating a Durable Power of Attorney (DPOA) for finances is a key step in estate planning for unmarried couples. This legal document grants your partner the authority to handle financial matters such as savings, bank deposit accounts or other obligations on your behalf if you become incapacitated due to a severe injury or illness.
Without this critical documentation, a court would be forced to appoint a conservator to manage your estate—a process that can be both time-consuming and costly—involving family members rather than your partner. A DPOA bypasses this, allowing your partner quick access to necessary resources. For example, in the event of an abrupt illness, they could access your checking account to pay the mortgage, bills, or handle other financial liabilities without delay or the need for court intervention.
Ensure you consult with an experienced estate planning attorney to help you draft this document. It is essential that this document meets all the legal requirements in your state in case of unforeseen circumstances like disability, death, or a relationship breakup.
Create A Medical Power Of Attorney
A Medical Power of Attorney (MPOA) is another crucial document that unmarried couples should consider. An MPOA, also known as a health care proxy or health care surrogate, equips your partner with the authority to make critical healthcare decisions on your behalf if you become incapacitated or unable to voice such decisions yourself.
This authority extends to vital choices, such as selecting or declining medical treatments and procedures, making decisions about care facilities, consenting to transfusions, or choosing or rejecting life-support options. Importantly, having an MPOA ensures your medical wishes are respected in case you’re unable to articulate them personally.
Crafting an MPOA may sound distressing, but it’s an act of love and trust that guarantees your healthcare wishes will be respected, and your loved one, not the court, make the final decisions. Don’t forget to synchronize your MPOA with a Living Will or Advance Healthcare Directive, explicitly describing your specific end-of-life healthcare preferences. Seek advice from an attorney to make sure your MPOA adheres to your state’s laws and includes all critical provisions.
Consider A Revocable Trust
Given the current laws favouring spouses and close relatives, considering a revocable trust is an excellent step for unmarried couples who wish to protect their partner’s interests. Revocable trusts allow for the effortless transfer of property and assets to a named beneficiary (like your partner) without the complications of probate court. At this point, you might wonder how savings and other liquid assets play into this. Put simply, savings can be seen as assets too and can be managed within a trust structure.
When you build a revocable trust, you become the trustee with complete custody over your assets. The trust’s “revocable” feature permits you to add or remove assets, amend terms, or dissolve it entirely if you choose.
Upon your death or incapacity, your designated successor trustee (possibly your partner) takes over, handling the trust according to your directives. Such oversight can include the dispersion of assets to beneficiaries, creating liquidity to settle estate and income taxes, or even ongoing management of the trust over a certain timeframe.
When it comes to estate planning, a revocable trust is one of the key takeaways for ensuring your partner doesn’t face potential roadblocks of asset distribution, These challenges could arise, particularly in situations of enduring commitments without legal marriage or unresolved custody issues. It’s also crucial to manage the deposit and withdrawal records effectively between the “partners” involved to assure a smooth transfer.
Is estate planning less important for unmarried couples?
Contrary to common misconceptions, estate planning is critically important, if not more so, for unmarried couples. This is especially true for cohabitating partners who often overlook common planning pitfalls. Let’s debunk a few misconceptions:
- Estate planning isn’t needed unless we’re wealthy: Regardless of the size of your estate, without appropriate planning, your assets may not adhere to your desired distribution. This situation can leave your partner at a disadvantage, especially when the estate exceeds the estate exemption amount.
- My partner can make decisions for me if I can’t: Without legal documents in place like a Medical or Durable Power of Attorney, or a health care directive, it’s often family members who are called upon for medical decisions or financial matters, not partners.
Remember, unmarried couples often face unique challenges due to the absence of legal marriage. Therefore, estate planning for these cohabitating couples is crucial in assuring equivalent legal and financial protections that married couples receive. It serves to secure your partner’s future, uphold savings goals, and maintain their living standards upon your passing or incapacitation. Tools such as prenuptial agreements or joint ownership through rights of survivorship serve as integral parts of such planning.
How do I create an estate plan?
Creating an estate plan involves a few main steps:
- Assess Your Assets: Compile a comprehensive data list of all your assets, including properties, financial accounts, brokerage and bank accounts, retirement funds, insurance policies, valuable items, and any shares in businesses.
- Identify Your Beneficiaries: Determine who you want to inherit your assets upon your death. This might include your partner, children, family members, friends, charitable organizations, or named beneficiaries in a Transfer on death (TOD) or paid on death (POD) registration.
- Choose Your Estate Executors: Identify trusted individuals who will ensure the accuracy of the executing your wishes, as stated in your will.
- Consult with Wealth and Legal Advisors: Seek assistance from professionals experienced in accounting, custody matters, and estate planning. They can help draft essential documents and provide advisory services including investment advisory services, based on your unique situation and wishes.
- Regularly Update Your Plan: Life’s circumstances are dynamic. It’s crucial to review and revise your estate plan to incorporate changes like transactions that alter your assets, changes in relationships, or shifts in state and federal laws.
Remember, an estate plan is an ongoing commitment. As your life evolves, so should your estate plan. Regular consultations with needs-based consultants like wealth advisors will ensure your estate plan stays up-to-date, effective, and continues to protect your and your partner’s interests.