Estate planning for unmarried partners

June is Pride Month, and it’s a good opportunity to review how important estate planning is for protecting your wishes, especially for unmarried partners. Current laws and rules favor the interests of married spouses. Without proper planning, unmarried partners may face challenges proving their rights when it comes to financial and medical choices and access.

Whether or not you choose to get married, creating your financial and estate plans today can help reduce issues later. Here are some key things to think about:

• Estate tax.?While married spouses aren’t generally required to pay estate taxes on any assets transferred to them from their deceased spouse’s estate, unmarried couples don’t receive the benefit of a marital deduction for estate tax purposes. Instead, estate taxes are due upon the first partner’s death (rather than being delayed until the second partner dies).
• Gift tax.?Spouses can make unlimited gifts to each other during their lives—simplifying the process of equalizing estates for planning purposes. But gift tax rules apply to any asset transfers between unmarried couples. Gifts need to be kept below the annual exclusion amount ($18,000 in 2024) or they will reduce the individual’s lifetime gift and estate tax exemption.
• Rights to inheritance.?Assuming there is no waiver of rights in a prenuptial or postnuptial agreement, state laws typically afford a surviving spouse certain rights if he or she is omitted from an estate plan. Unmarried partners, however, have no assumed rights to each other’s assets if someone else is named as the beneficiary of those assets.
• Health care and financial decisions.?Without documentation in place, it’s often easier for spouses to make health care decisions and financial decisions for an incapacitated spouse. Conversely, without a power of attorney or medical directive in place, an unmarried partner’s legal next of kin will likely be the person to make health care and financial decisions on their behalf if incapacitated.

How to make sure your wishes are carried out

For unmarried couples, there’s no presumption that your estate will pass to your partner. In fact, if you don’t have a will or a trust when you die, the law generally favors your next of kin to receive your assets.

In addition, even if you have documents, not being married can raise a greater potential for litigation surrounding the distribution of your estate assets—especially if there is any animosity toward your partner or other conflict among family members. Therefore, it’s essential for unmarried partners to think through their?estate plan?on a regular basis and ensure their documents are clear and up to date.

Protect yourself and your partner with these essential estate planning documents

The following important legal documents identify one or more specific individuals and give them the authority to manage your affairs in an emergency:

• Advanced health care directive.?Often referred to as a ‘health care proxy,’ this document designates individuals you entrust to make all medical decisions on your behalf if you are ever incapacitated. In this document, you can list specific health care wishes that your representative will implement during your incapacity.
• Durable power of attorney.?This document provides a trusted individual of your choosing with the authority to handle your financial affairs such as filing tax returns, accessing savings and paying bills if you’re incapacitated. If you and your partner have separate accounts, you’ll both need a power of attorney to access the other’s finances.
• Will.?Establishes who inherits any assets in your individual name as well as who should serve as the guardian of any minor children upon your death.

Additionally, unmarried partners might want to consider transferring ownership of some or all their assets to individual revocable trusts. Each of you can name yourself as trustee and retain complete control over your affairs if you’re able. If, however, either of you become incapacitated, your successor trustee (the person you designate to oversee the trust if you are unable) would then be able to step in and automatically assume the management of your property.

Often, a revocable trust can serve as the document through which you articulate your wishes for how and to whom your wealth should be transferred at death. And if properly funded, it can help protect your assets from having to go through the probate process.

Titling your accounts determines how you and your partner inherit joint assets? ?

Unmarried couples should pay close attention to how they title any joint assets—either as ‘joint tenants with rights of survivorship’ or ‘tenants in common.’ Titling ultimately depends on whether each partner intends for the other to inherit his or her share of the asset after death.

Any assets held as joint tenants with rights of survivorship will automatically pass to the other partner. Assets held as tenants in common will pass according to the terms of your will. Tenants in common have no rights of survivorship. So, unless your will specifies that your ownership interest should transfer to the surviving owner (or you had previously placed your ownership interest into a revocable living trust), it becomes part of your probate estate.

For retirement accounts, beneficiary designations supersede your will—so make sure they’re current. Typically, who you list as the beneficiary of your retirement account will supersede the provisions of your will, so it’s important to make sure your named beneficiaries are correct. If you originally named a parent or sibling as your IRA or 401k beneficiary when you first opened the account but now want that asset to go to your partner, you’ll need to update your beneficiary. For most accounts it’s a quick and easy process which can be done online.

We recommend reviewing the beneficiaries listed on your accounts at least every couple of years or anytime an important life event (birth, death, marriage, divorce) occurs.

Clear communication can minimize future conflict

Communication about your wishes regarding health care decisions, the disposition of your assets and other financial matters is a critical part of the planning process. This involves communication between you and your partner and clear communication of your intentions and desires to your children or other family members—especially if you anticipate that what’s laid out in your estate planning documents may not align with your family’s expectations.

This can be particularly important in situations where potential beneficiaries may have competing interests or strong beliefs about who the rightful inheritors should be. While these may be difficult conversations, getting everything out in the open and your wishes clearly articulated and discussed can make things immensely easier on your partner.

For unmarried couples, estate planning can be a somewhat more complicated and nuanced undertaking. But with proper planning, both you and your partner can better ensure that both your individual and joint assets are ultimately distributed appropriately and efficiently according to your wishes.

Next steps:

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