10 Essential Estate Planning Considerations for Unmarried Couples
As the old saying goes, only death and taxes are certain. Estate planning is crucial to preparing for the future, even though it may not be the most enjoyable topic. It entitles unmarried couples to different legal protections and benefits. Married couples usually have a clear-cut case because they are legal heirs of the family estate.
When making an estate plan as an unmarried couple, there are many essential estate planning considerations, from safeguarding assets to ensuring doctors handle medical decisions according to your intentions. In this article, we’ll look at some of the most critical estate planning considerations and explain why engaging with experts like estate lawyers, accountants, and tax services can be essential to developing a thorough and legally enforceable estate plan.
1. What Happens If You Don’t Have an Estate Plan as an Unmarried Couple?
60% of Americans don’t have a will or estate plan, according to an AARP survey. The repercussions of not having an estate plan might be particularly severe for unmarried couples. Without a plan, the state’s intestacy laws will govern the distribution of assets. This implies that assets may flow to family members rather than the surviving partner, despite the deceased’s intentions. Establishing a comprehensive estate plan that details your preferences and offers legal protection would be best.
It’s crucial to remember that, as an unmarried couple, you may experience difficulties making medical decisions without an estate plan. The other partner might not have the legal right to make medical decisions on behalf of the disabled partner if that partner becomes incapacitated. This can be especially troubling when family members disagree with the partner’s preferences.
An estate plan may contain a healthcare power of attorney, which gives the spouse the legal capacity to make medical choices. Ultimately, unmarried couples who don’t have an estate plan may face severe financial and legal problems. However, an estate lawyer ensures you express your goals and legally protect them on paper.
2. Essential Documents for Estate Planning for Unmarried Couples
Unmarried couples may need essential extra-legal documents for estate planning. You can use an estate planning service to obtain the essential documents. Here are some documents you might need.
Durable Power of Attorney
A durable power of attorney (DPOA) is essential when drafting an estate plan. It is a legal document that gives one partner the power to decide on financial matters on the other partner’s behalf. This is crucial when one partner cannot manage their finances due to illness or injury.
Healthcare Power of Attorney
In a power of attorney, one person (the ‘principal’) gives another person (the ‘agent’) the right to act on their behalf, frequently per a detailed set of instructions. A healthcare power of attorney gives the agent access to the principal’s vital medical records, which may also be among essential estate planning considerations when choosing a course of treatment. It allows the agent to make medical decisions relating to the cure on the principal’s behalf.
If you have a terminal illness or are in a persistent vegetative state, you can use a living will to specify the medical procedures you do and do not want. For instance, you could decide whether to keep using feeding tubes or other life-supporting technology or, if there is no chance of recovery, whether to stop using them at a given time. You can specify the treatments you do or do not want until you become disabled, at which point they will take effect.
3. The Importance of Estate Planning for Unmarried Couples with Children
Estate planning is necessary whether a couple is married or not. However, for unmarried couples with children, estate planning is essential. The following are some benefits of estate planning for unmarried couples with children:
Protecting the Interests of Children
According to a Pew Research Center survey, nearly 40% of children in the United States are born to unmarried parents. Estate planning is essential for childless couples. Without an estate plan, it may not be possible to support children financially, and if one or both partners pass away, custody disagreements may occur.
Avoiding probate is another benefit of estate planning for childless, unmarried couples. The legal process of probate can be time-consuming and expensive, and it can delay the transfer of assets to beneficiaries. Therefore, you should make an estate plan to ensure your assets pass on efficiently without going through probate.
Unmarried couples can select guardianship for their children during their deaths through estate planning. This can guarantee that a responsible adult you trust cares for your kids. Otherwise, the court may give guardianship to someone you would rather not take up the responsibility.
Reducing Estate Taxes
Unmarried parents with minor children can also lower inheritance taxes through estate planning. You can reduce the taxes your children will owe when they inherit by establishing trusts, giving to charities, and utilizing other tax-saving measures. Paying tax is essential, but you don’t want a substantial part of your estate to go to taxes.
Providing for Partners
If one partner passes away, estate planning law helps guarantee that unmarried partners are cared for. As an unmarried couple, you can ensure your partner can stay in the family home, for example, by creating an estate plan.
4. Protecting Both Partners’ Separate Assets With an Estate Plan
Protecting each partner’s separate assets is crucial in estate planning for unmarried couples. Without an estate plan, each couple’s assets might be distributed per state law, perhaps depriving one partner of the assets they had planned to leave to their heirs. You can create an estate plan that safeguards your different assets and guarantees the fulfillment of your intentions.
Using a prenuptial or cohabitation agreement is one strategy to safeguard separate assets. These legal agreements can specify the particular property of each partner and the distribution of that property in the event of a divorce or death. An estate plan can further determine how different assets will be allocated and guarantee that they pass to the appropriate beneficiaries in addition to these agreements.
The use of trusts is another tactic for safeguarding different assets. A trust can hold assets for a specific person’s benefit, giving that person more control over how they distribute them. This can be especially advantageous for unmarried couples since it can guarantee that the intended beneficiaries of each partner’s separate assets will receive their inheritance.
Unmarried couples can have a thorough estate plan that safeguards each partner’s different assets by working with estate attorneys. An estate lawyer can advise on the most effective methods for preserving assets, write legal papers like prenuptial agreements or trusts, and ensure the estate plan is binding and accurately reflects the couple’s preferences. You can feel secure knowing that you have safeguarded your assets and that your estate plan is in order with the assistance of an estate attorney.
5. How Unmarried Couples Can Avoid Probate With an Estate Plan
Probate is the legal procedure for managing a person’s estate after death. Probate can be time-consuming and expensive for unmarried couples, possibly tying up assets and adding extra stress to surviving partners and family members. Fortunately, you can use some techniques to prevent probate and guarantee a smooth transfer of assets to your designated beneficiaries. Let’s see how estate planning can help you avoid probate.
Use Beneficiary Designations
Using beneficiary designations is one of the simplest ways to avoid probate. This entails naming beneficiaries for assets, including bank accounts, life insurance policies, and retirement funds. If your spouse passes away, you can get all the assets without going through probate.
Establish Joint Ownership
Joint ownership of assets is another strategy to avoid probate. For instance, as a couple, you can jointly own a house, meaning each of you has an equal stake in the building. The property automatically transfers to the surviving partner after one partner’s death, bypassing the probate process.
Create a Living Trust
A living trust is a formal legal arrangement that preserves assets for the benefit of beneficiaries. Beneficiaries can acquire assets without going through probate with a living trust. This guarantees that you can quickly transfer your assets to the proper beneficiaries.
Make Use of an Estate Planning Service
Unmarried couples can have a thorough estate plan that avoids probate by working with an estate planning provider. The experts draft legal instruments like living trusts and ensure the estate plan is legally binding and matches the couple’s intentions. Estate planning services can advise on the best ways to avoid probate.
6. Donating to Charity as Part of Your Estate Plan
Charitable giving can play a significant role in estate planning for unmarried couples. Many couples can donate a portion of their estate to a worthwhile cause to leave a lasting legacy. Giving USA reported that the amount donated to charity in the US rose by 5.1% to a record-breaking $449.64 billion in 2019. This tells you there may be tax advantages because charitable contributions can shrink an estate and possibly cut estate taxes.
Making a charitable organization the beneficiary of a will or trust is one way to donate to a cause as part of an estate plan. It could be a sum of money or a portion of the estate. Another choice is to create a charitable trust that can provide the surviving partner with income for their life while donating the remaining cash to a charity.
However, you should consult an estate planning lawyer or service when considering charity giving in your estate plans. They can assist in setting up the donation in a way that complies with your intentions and benefits the charity the most. To ensure the donation has the most impact, charity fundraisers can advise on specific causes and organizations that reflect your values.
7. Managing Retirement Funds as an Unmarried Couple
For unmarried couples, managing retirement assets is crucial to estate planning. Teams should have a strategy to guarantee that each partner’s retirement earnings are safeguarded and utilized per their preferences. Here are some essential things to think about:
- Designate beneficiaries: For retirement funds like 401(k)s, IRAs, and pensions, it’s crucial to specify beneficiaries. These designations determine the beneficiaries in case of the account holder’s demise. You should further ensure that your spouse is listed as the beneficiary since these accounts may default to family members if no beneficiary is listed.
- Take joint accounts into consideration: Some retirement accounts permit shared ownership, which can be a means for you to guarantee that your partner has access to the money. It’s crucial to comprehend the tax repercussions of joint ownership and consult a financial expert to ensure both of your intentions are expressed in writing and legally safeguarded.
- Plan for coordination with other estate planning documents: You should match your retirement funds with other estate planning paperwork, such as wills and trusts, to ensure you fulfill your wishes.
- Consider long-term care: If, as an unmarried couple, you intend to age independently, long-term care insurance or other alternatives should be among your essential estate planning considerations to make sure you are financially prepared for any future healthcare needs. A financial advisor or independent senior living facility handles your retirement savings.
8. Special Considerations for Estate Planning for Unmarried Couples with Business Interests
Deciding what will happen to your company if one partner passes away should also be among the essential estate planning considerations. A buy-sell agreement, which specifies what happens to the company and each partner’s stake in the event of death, disability, or retirement, is one option you might include in your estate plan. Life insurance policies can also fund buy-sell agreements to ensure the surviving partner has the resources to purchase the deceased partner’s portion of the company.
Working with accountants will help you as an unmarried couple with business interests to ensure your estate plans account for any tax repercussions of transferring ownership of the company. You might also want to consider creating a trust to hold your business interests since it can offer protection and guarantee a seamless transfer of ownership if your partner passes away or becomes incapacitated. Additionally, the trust might lay down your partners’ share of earnings and losses and management guidelines for the company. As an unmarried couple with business interests, you should frequently examine your estate plans to ensure that you are current with any changes to your personal or company situations.
9. The Importance of Estate Tax Planning for Unmarried Couples
Estate tax services should also be among your essential estate planning considerations, especially if they have a lot of assets. According to the Congressional Budget Office, the federal estate tax is imposed on estates that exceed a specific value (currently $11.7 million for single people and $23.4 million for married couples). Many states additionally have estate tax regulations. As an unmarried couple, you can develop a plan to lessen the tax burden on their estate and ensure that their assets pass on as per their intentions with the help of a tax office or an estate planning attorney. You can use the following techniques:
- Giving: You can reduce the size of your inheritance and perhaps even avoid or cut estate taxes by giving assets to family members or other close friends while you are still alive.
- Irrevocable trusts: You can transfer property from an estate, lowering its value and avoiding estate taxes.
- Life insurance: Life insurance plans can act as a source of cash to cover estate taxes and ensure the surviving spouse is financially taken care of.
10. The Importance of Power of Attorney
The power of attorney is also among the essential estate planning considerations that give one individual the legitimacy to act on another person’s behalf. It’s particularly vital for unmarried couples when it comes to medical treatment. If you cannot make medical choices for your partner, a medical power of attorney empowers you to do so.
Without the power of attorney, relatives or healthcare professionals may make medical decisions, but they might not be familiar with your partner’s intentions. This may cause arguments and cause your partner to receive medical care against their wishes. As an unmarried couple, you can design a power of attorney instrument that satisfies your circumstances and guarantees that an estate planning lawyer will help you fulfill your intentions.
As an unmarried couple, there are many essential estate planning considerations, regardless of age or financial situation. A thorough estate plan can cover several essential estate planning considerations, including asset protection, guaranteeing the welfare of children, charitable giving, and tax planning. You can enjoy peace of mind knowing that your intentions will be honored and you have safeguarded your legacy.