Unmarried couples, whether they're homosexual or heterosexual, can find themselves in a unique situation when it comes to proper estate planning. Though they have many of the same estate planning needs and concerns as married couples, unmarried couples do not have the same legal rights as married couples do. Unmarried couples are not able to receive the numerous tax advantages afforded to married couples. Federal estate and gift tax rules also favor married couples.
Unmarried status affects inheritance rights, and if a partner dies intestate (with no will or living trust in place), the state's intestate succession statutes will apply, and the decedent's estate would pass (in most states) to their parents if they're alive. If not, then it would pass to the siblings, and so on. Unmarried couples also have no inherent power to act on each other's behalf should one or both become incapacitated.
The good news is that with proper planning, many of these problems can be solved; however, thoughtful planning is essential if people want to properly protect themselves and their loved ones.
Unmarried couples should consider the viability of the following basic planning tools and strategies:
1. Estate planning, including a will and preferably a revocable living trust. Because unmarried couples' wills are often contested, consider a revocable living trust for its privacy and the inclusion of a "no contest" clause. A properly funded living trust will help bypass probate.
2. Power of attorney for assets. This will allow each involved party to manage the other's assets, pay bills, and attend to all financial affairs.
3. Power of attorney for health care (or advanced health care directive). These allow each party to make medical decisions for the other in the event that one of them is deemed legally incapacitated.
4. Proper beneficiary designations on life insurance policies. Review your client's beneficiary designations if they intend to include their partner.
5. Retirement accounts (IRA, 401(k), pension plans, etc.). Review beneficiary designations and check to see if an employer plan will allow the client to designate their part-ner. If not, an alternative is to have the clients' estate or a specialized qualified plan trust as the beneficiary of the plan with the clients' partner as the trust beneficiary.
6. Establish payable on death or transfer on death accounts. This regards your client's bank or investment accounts.
7. Ownership as joint tenant. This is a form of co-ownership in which the partners would own property in equally undivided interests. A deceased partner's interest would automatically pass to the surviving partner/joint tenant without the need for probate. Caution must be exercised if gifting an interest as there are well-defined limits placed upon gift amounts under the IRS code.
8. Consider gifting or investment strategies to equalize the couple's individual estates. Quite often, one partner's estate is substan-tially larger than the other's, which can present an estate tax planning dilemma if one wants to fully benefit from the federal estate tax equivalent exemption. Avoid inadvertent gifts from commingling.
There are a number of additional strategies involving charitable planning or trust options that can be beneficial for unmarried couples. For example, the qualified personal residence trust can allow one to have the right to use a personal residence and, upon expiration of the trust's term period, the property passes to a person the client chooses.
Unmarried couples do face more challenges than their married counterparts, but with some creative estate planning, you can help ensure the security of their survivors.
Wayne Hoff, CEPP is the director of asset protection and estate planning services at Corporate Service Center Inc. in Reno, NV. He can be reached at 800-628-2320, ext. 225. For more information, please visit www.corporateservicecenter.com.
