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
If you require counsel, contact one of our Menlo Park Estate Planning Attorneys today.
