Today, more Americans than ever are choosing to live together rather than get married, which was made apparent in the Census data which showed that the number of live-in couples in the U.S. rose 25 percent between 2000 and 2010. It is important for unmarried couples to note that they do not have some of the financial advantages that go along with marriage. The lines may be blurred for unmarried couples in issues like estate planning, which could potentially have negative consequences. Unmarried partners should educate themselves as much as possible on the subject to avoid unintended consequences.
Estate planning is creating detailed instructions on how you want your assets and property handled after your death. If you have not created an estate plan, your state will have a default plan for you. The state will create your plan by putting your assets through a court process called intestate, or “no Will” probate. Most people would rather not have the default plan, especially for unmarried partners. State laws usually award assets to direct family members, which is not favorable for unmarried life partners or non-traditional families. Though state laws vary, the state would not award your assets to a nonfamily member, and your partner would not receive any of your assets.
One way you can try to make sure your partner receives your assets is to name them in your Will. On your Will, you can leave assets to your partner, but the assets it controls will still have to go through a probate before they are distributed. This means that the state will treat your Will as a searchable public record, and the process invites family members to contest the Will. Using a Will to award assets to your spouse may not be the best choice if you are concerned about a loss of control or a loss of privacy; and most notably, it is still possible for your partner to not receive your assets since they are a nonfamily member. But a Will is not your only option.
Another way to make sure your partner gets your assets is for both of you to name each other as beneficiaries on pensions, retirement accounts, and insurance policies. Assets with a valid beneficiary designation bypass the probate to the named beneficiaries. Property owned jointly with right of survivorship will automatically be granted to the survivor. It is common for an unmarried couple to put both of their names on a title to make sure the asset will transfer to the surviving partner. However, this can cause unintended consequences that it is important to take note of, including:
- jointly owned assets can be potentially misused by your joint owner
- jointly owned assets are exposed to your joint owner’s creditors
- jointly owned assets can come with gift tax issues and income tax issues
- it can be difficult to remove a joint owner
- it can be difficult to leave a jointly owned asset to anyone other than the joint owner
- joint ownership does not provide any asset protection to your joint owner after you die
Beneficiary designation is a valid option, as long as the couple takes into consideration the possible complications and outcomes.
Another valid way to avoid probate and ensure your partner receives your assets is to establish a Revocable Living Trust.With this estate planning tool, you create instructions during your lifetime which specify how your assets will be handled after death. You name a Trustee who oversees your Revocable Living Trust, which can be yourself, and you also name a successor Trustee, who is someone you trust to make sure your wishes are respected after your death. Trusts are a popular choice, because they minimize tax exposure, protect your assets from creditors, avoid probate, and allow you total control of your assets.