What To Know About Estate Planning as an Unmarried Couple
The number of unmarried couples choosing to live together has significantly increased in the past few decades, up to 17 million in the United States. Whether it’s due to personal beliefs or past experiences, the decision to forgo marriage is a personal one. However, this choice comes with unique challenges, especially regarding estate planning.
The Essentials of Estate Planning
Estate planning is not exclusive to married couples. Unmarried couples should think about drafting documents to ensure their wishes are honored. The essential components of a comprehensive plan include:
- A living will with a healthcare proxy
- A financial durable power of attorney
- A Last Will and Testament
Failing to have these documents in place may result in state law dictating decisions on behalf of the individual. In turn, those decisions could conflict with your preferences. For that reason, you want to take proactive measures and create these documents to secure your future.
Here is a detailed look at these components.
Living Will and Healthcare Proxy
A living will allows individuals to outline their healthcare preferences in the event of incapacity. Unmarried couples should appoint a healthcare proxy to make decisions on their behalf. With that, you can ensure that a trusted individual, rather than state-appointed representatives, manages your medical choices. An estate planning lawyer can create these documents with your input.
Financial Durable Power of Attorney
Unlike married couples with shared accounts, unmarried couples could have a few challenges if they need to access the other person’s funds. A financial durable power of attorney grants the partner the authority to manage the other’s financial affairs for day-to-day expenses or any unforeseen circumstances.
Last Will and Testament
Having a Last Will and Testament is important for unmarried couples as it designates an executor to handle the estate assets. With that, you can have more clarity on asset administration and distribution after one partner passes away.
Other Considerations
Along with the primary parts of your estate plan, you should think about other aspects of your life as an unmarried couple.
Inherited Property
Unmarried couples often face significant disparities in the treatment of inherited assets compared to their married counterparts. As a result, it can leave them exposed to federal estate taxes. Many married couples enjoy federal benefits that are not extended to unmarried couples. To avoid these complications, you may want to explore wealth replacement strategies, such as purchasing life insurance within an irrevocable life insurance trust to cover potential estate taxes.
Receiving Gifts
When gifting assets between unmarried partners, keeping a detailed paper trail of deposits and withdrawals can help avoid complications. While gifting has implications, a trust can be a valuable tool for protecting assets from liabilities and ensuring the intended distribution of assets after both partners pass away.
Joint Property Ownership
The way unmarried couples own property together can have major implications for the distribution of assets after death. Choosing joint tenancy with rights of survivorship or as tenants-in-common could help to avoid any problems. Along with that, you need to regularly review beneficiary designations, especially for retirement accounts, to ensure they align with your preferences.
Cohabitation Agreements
Cohabitation agreements can be a tool for unmarried couples. Like prenuptial agreements for soon-to-be married couples, they outline each partner’s rights regarding assets brought into the relationship and those acquired during it. They can also address provisions for children from previous relationships.
What About Common-Law Marriages?
Many unmarried couples believe that they have a common-law marriage. Some states give this designation after a couple has lived together for a certain amount of time. However, common-law marriage is recognized in only a handful of states, and New Jersey is not one of them. For a marriage to be legally recognized, the couple must obtain a marriage license and participate in a formal ceremony conducted by an authorized official. Failure to meet these requirements means a common-law marriage will not be considered legally valid in the state.
Reach Out to an Estate Planning Lawyer
At The Knee Law Firm, LLC, our attorneys can help you through this complicated process. We can help you plan for the future as an unmarried couple. Contact our Paramus office at 201-996-1200 or visit the website to set up an appointment.