Photography by Lee Snider/CORBIS
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Estate Planning Tips for Unmarried Couples
By Randy B. Hecht, May & June 2004
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If you're incapacitated by injury or illness, who is empowered to make
medical decisions for you? What will become of your estate—and your loved
ones—when you die? The answers depend in large part on your marital
status—or, if you are not married, on the provisions you have made for
handling the end of your life and distributing your assets as you choose.
Couples who are not married, even those who have made extensive personal,
emotional, and financial commitments to one another, have the same legal status
as strangers in most states, according to Fred Caspersen, a partner with the
law firm Farella Braun + Martel LLP, and Lara Gilman, special counsel. That
status affects inheritance rights, the power to act on one another's behalf
in the event of a health care emergency, and the obligation to provide
financial support.
"Generally, if you die without a will in California, your spouse would
inherit all of your community property and, depending on whether you had
children or not, some or all of your separate property," Caspersen says.
"For same-sex couples who are not registered domestic partners, there are
no such inheritance rights. If a person dies without a will who is not a
registered domestic partner in California, all of their property would go to
their parents, if they were living—if not, to their siblings,
etc."
The significance of a registered domestic partnership varies by state.
"The federal estate- and gift-tax rules are not in favor of domestic
partners and don't look to be any time soon," Gilman cautions,
"so the benefits that spouses get are not going to be conferred on
domestic partners, registered or not."
"There are a lot of routes other than wills to dispose of
property," Caspersen adds. "For example, holding an account or real
property in joint tenancy with someone else results in the property passing to
the surviving joint tenant at the death of the deceased joint tenant." In
most states, he says, "pay-on-death" or "transfer-on-death"
accounts available through banks or brokerage houses pass automatically to a
designated beneficiary, which makes it possible to avoid administrative
problems such as probate. Insurance policy beneficiary designations offer
another means by which partners may provide for one another.
Caspersen and Gilman urge people to protect themselves and their loved ones
by considering the following actions:
- Prepare an
advance health care directive naming your partner as your agent to make
health care decisions for you. That also acts as a directive in terms of
end-of-life measures.
- Create a durable
power of attorney enabling your partner to manage your assets if
you're unable to.
- Prepare beneficiary documents to ensure your estate is handled as
you wish. Documents could include a will or a
will in conjunction with a revocable trust, beneficiary designation,
pay-on-death account, and joint tenancy accounts.
- Keep beneficiary designations (like those on life insurance
contracts and retirement accounts) up to date, especially those acquired
before your relationship began.
- Consider the effect of taxes on your major gifts. "Under the
federal estate-tax law, gifts from one spouse to another are free of estate
tax," Caspersen says. "Gifts from an unmarried person to someone else
are not free of tax. If the estate is meaningful...you need to think ahead on
how to make that money available in a tax-efficient way. And even if you decide
that tax is going to have to be paid when [you die], by suspending the property
in trust for the benefit of the survivor for the survivor's lifetime, you
can at least avoid tax on the death of [your] partner."
If your partner dies, be sure to revise all of your estate-plan
documents.
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