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Estate Planning for Unmarried Couples
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There is a general misconception that estate planning is only for wealthy people and families. In reality, unmarried couples may benefit more from estate planning. Without an estate plan, unmarried partners cannot make end-of-life decisions. Also, in the case of death, the surviving partner may be unable to inherit from the deceased.
According to the U.S. Census Bureau, the number of unmarried partners in the U.S. has tripled in the last 20 years. With over 17 million unmarried couples in the U.S. today, there is a need to talk about estate planning.
What Is an Estate Plan?
A comprehensive estate plan is a collection of legal documents. These estate plan documents could include
A durable power of attorney for financial affairs
Health care proxy and health care directive
Estate planning documents are usually prepared to safeguard you and your assets if disability or death occurs.
The law also provides certain protections to unmarried partners if one becomes incapacitated or dies. This guide is an overview of estate planning for unmarried partners.
Why Is Estate Planning Especially Important for Unmarried Couples?
For several reasons, attorneys encourage unmarried couples to engage in estate planning.
An estate plan can assist unmarried couples in protecting their assets in the event of mortality or incapacity. If you don’t have a trust or will, the laws of intestacy will provide the distribution of your property.
Unmarried couples are considered legal strangers in the event of intestacy. Therefore, unmarried couples have no privileges under the laws of intestate succession.
In the event of a medical emergency, estate planning can help ensure that a non-married companion’s wishes are honored.
If incapacity occurs, your health care directive allows one spouse to make medical decisions on behalf of the other. If you do not have this, healthcare providers may consult your family members.
Probate is a time-consuming and expensive legal procedure of transferring assets to beneficiaries. Unmarried couples can avoid probate through the use of a revocable living trust. That transfers assets directly to named beneficiaries.
Inherited Property and Benefits for Unmarried Couples
Federal estate taxes may apply if you inherit assets from a non-married partner. You may also pay state-imposed estate taxes in some states, like New York, Connecticut, and Massachusetts.
The federal estate tax exemption per person is released annually by the IRS. It might attract federal estate tax if it exceeds the federal estate exemption amount. The only way around is to use estate planning tools, such as the following:
You could purchase life insurance that would be owned within an irrevocable life insurance trust. The insurance would be included in the amount of the estate tax due. That would replace the tax that the estate would pay.
Unmarried couples can give their partner up to $12.06 million as nontaxable gifts in a lifetime. However, gifting more than the lifetime gift tax exemption may also generate issues for unmarried couples.
Beneficiary designations supersede your will for retirement accounts. Suppose you designated family members as beneficiaries of your retirement account. Then, you must update your beneficiary if you want the asset to go to your partner.
Common Law Marriage
The National Conference of State Legislatures (N.C.S.L.) monitors common law legislation. According to the N.C.S.L., common law marriage regulations differ from state to state. However, many states recognize the validity of a common-law marriage.
A common law marriage regards cohabitation as if it were a marriage. The survivor is eligible for the estate and gift tax exemptions. Common law marriage is when a couple’s relationship satisfies specific state law requirements.
Generally speaking, common law marriages are permissible when:
Couples have cohabitated for a certain period
Both participants in the relationship meet the legal requirements for marriage
Both parties desire marriage
The nature of the couple’s relationship is public knowledge