Estate Planning for Unmarried Partners
Marriage rates in the United States have been falling for decades. According to data from the CDC, the rate of marriages per 1,000 people fell from 8.2 in 2000 to 6.1 in 2019. (Source) But falling marriage rates don’t mean that people are staying single. Many life partners have instead chosen to build their lives together without seeking traditional legal acknowledgment of their union.
But probate and estate planning laws are not keeping up with the population’s changing preferences. This article explores some of the considerations that unmarried partners should consider so that they can preserve some of the advantages of marriage and provide for each other in the event of death or incapacity.
Domestic relations partnership agreements can formalize financial and property relationships for long-term partners.
A domestic relations partnership agreement can address many of the same issues that would be covered by default in a traditional marriage, including division of property at the end of the relationship, child custody and rearing, separate and commingled property, sharing of expenses, authority to control assets including brokerage accounts, property and other assets, compensation for domestic services, procurement of health and disability insurance, dispute resolution, end of life wishes, trusts, guardianships and powers of attorney, and cohabitation of primary residence.
Structuring domestic relations agreements as partnerships allows couples to hold property in advantaged ways similar to a tenancy-by-the-entireties for married persons. They can also be helpful vehicles for purchasing and transferring life insurance. Partnership agreements can also, theoretically, allow more than two life partners to structure formal domestic arrangements. But, such multi-person agreements are novel and should only be prepared with the help of an experienced attorney.
Grant power-of-attorney to your partner or partners.
Common even among married couples, granting a power-of-attorney is a powerful tool that all unmarried partners should consider. A power of attorney grants authority to an agent to act in your place. The agent’s powers can be very broad or exceptionally specific.
Many married couples elect to grant a “general” power of authority to their spouse so that, in the event that either spouse is incapacitated or absent, the other may act on their behalf. Powers of attorney can be even more important for unmarried partners who may keep bills, property, or other matters in the name of only one partner. In the event that one partner is incapacitated, a power of attorney can ensure that the other partner or partners are able to pay the injured partner’s bills, operate their business, and otherwise maintain the status quo.
Prepare a living trust that clearly states how you wish your property to be disposed of after you die.
Unmarried partners may want to leave their personal property and assets to each other, which often requires effectively disinheriting some blood family members.
Although assets can be bequeathed to non-relatives in a will, most unmarried partners will be better served by also creating a living trust. A living trust is an instrument by which an unmarried partner (or anyone) can name a trustee to hold legal title to all or some of their assets for the benefit of identified beneficiaries. Assets that pass to beneficiaries in a trust are not subject to probate and pass directly to the named beneficiaries without any required court process.
In the case of unmarried partners, a trust can clearly lay out how the testator (the person creating the trust) intends to dispose of their assets. If any assets will be left to the testator’s non-spouse partner it is usually a good idea to identify and name in the trust documents any potential heirs who will be disinherited. Claims by disinherited family members are very common, especially when substantial assets are left to non-spouses or non-blood relatives. In situations that may be particularly contentious, “no contest” terms can be added to a trust to create a disincentive for aggrieved family members to bring a challenge.
Gift tax implications should be considered at each stage.
Probably the greatest disadvantage that unmarried partners face in comparison to married partners is the inability to claim the unlimited marital deduction. Pursuant to the unlimited marital deduction, spouses can make unlimited gifts to each other without triggering any gift taxes. But the same is not true for unmarried spouses.
If unmarried spouses make gifts to each other, for example by transferring assets to each other through a living trust, sharing income, or making unequal payments for their residence, they can easily trigger gift tax reporting requirements. Although no tax will actually be owed unless and until the total amount of lifetime gifts to either spouse exceeds $11 million (adjusted annually for inflation), the burden of accounting for and reporting gifts annually can be cumbersome and expensive. Additionally, even partners who make less than $11 million in gifts in their lifetime can end up with substantial estate tax bills after they pass. Because gifts are added back to a deceased partner’s estate when they die, the accumulation of gifts over a lifetime can result in the deceased partner’s heir or heirs having to pay estate taxes from the deceased partner’s remaining assets.
Before undertaking any significant financial commitments, unmarried partners should consult an estate planning attorney, certified financial planner, or accountant to discuss tax-efficient strategies.
***
Contact the Law Office of Ravi Patel if you need help planning your estate or understanding how your status as unmarried partners may affect your ability to leave assets to your chosen heirs.
