Part One: Planning for After Death
Estate planning is creating a set of instructions that specify how property is handled after death, and how property and health care decisions are handled during a period of incapacity. Proper estate planning is important for everyone. But for unmarried partners—opposite sex or same sex—it is critical. Part One of this two-part article will address some issues for unmarried partners to consider for after-death estate planning.
Avoid the State Default Plan
In a way, everyone has an estate plan. For those who haven’t created one, the state has a default plan. Assets will probably go through a court process called intestate (no Will) probate. And a state’s default plan is probably not what most people want. State laws vary, but generally, they direct assets to the closest family members. How a state determines who are the “closest” family members often is complicated for non-nuclear families. But one thing is certain: A nonfamily member, like an unmarried partner, will not receive any of your assets.
A Will Does Not Avoid Probate
A Will is a legal instrument that lists the person’s property (assets) and who should receive them after his/her death (heirs). The assets a Will controls will have to go through probate before they can be fully distributed to the heirs. During probate, a Will becomes a searchable public record. Probate proceedings vary from state to state, but many people view the time, cost, loss of privacy, and loss of control that come with probate as unnecessary evils that should be avoided. The process also invites family members to contest the Will. A nonfamily member, like an unmarried partner, may not receive the assets you leave to him or her in your Will.
How Joint Ownership and Beneficiary Designations Work
Even with a Will in place, all of the assets may not go through probate. Assets with a valid beneficiary designation pass outside probate to the named beneficiaries, and property owned jointly with right of survivorship will automatically transfer to the survivor. But if a beneficiary or joint owner is incapacitated when the owner dies, the court will get involved to protect the beneficiary’s interests. If a beneficiary or joint owner has died before or simultaneously with the owner, or the designation or title is otherwise invalid, those assets will have to go through probate and will be distributed according to the Will or, absent one, under the default state law.
Often, unmarried partners will put both names on a title (especially a home) to ensure the asset will pass to the surviving partner upon the death of the first. But this can create problems.
- jointly owned assets are exposed to the joint owner’s possible misuse of them.
- jointly owned assets are exposed to the joint owner’s creditors.
- jointly owned assets can trigger gift tax issues and income tax issues.
- removing a joint owner can be difficult.
- leaving a jointly owned asset to anyone other than the joint owner can be complicated.
- joint ownership does not provide any asset protection to your joint owner after you die.
Joint ownership and beneficiary designations can avoid probate, but often cause unintended consequences—both for you and for your unmarried partner.
How a Revocable Living Trust Works
A far better way to avoid probate is to establish and fully fund a Revocable Living Trust. This document lets you specify how you want your assets handled during your lifetime and after your death. You can be your own trustee and keep full control while you are living. You name a successor trustee, someone you know and trust, to uphold your instructions at your death or incapacity. The beneficiaries you name will receive distributions from the trust. Trusts are carefully structured to minimize tax exposure. Assets that remain in the trust are protected from creditors and predators—yours and your beneficiaries.’
With a Revocable Living Trust, you can avoid the pitfalls of Wills, joint ownership and beneficiary designations:
- avoid the time, cost, loss of privacy, and loss of control of probate;
- avoid uncertainty and unintended consequences; and
- if you and your partner separate, you can simply change your trust without retitling or dividing assets.
A Revocable Living Trust gives you maximum control over your assets, and gives your unmarried partner maximum protection after your death.
Ensure Your Wishes Are Met after Your Death
Unmarried partners do not have the same protections and benefits under the law that married partners have. An estate planning attorney who has experience working with unmarried partners can help you navigate the issues and make sure your after-death plan will work the way you want it to work when it is needed.
Next time, we’ll look at special considerations for unmarried partners in planning for incapacity.