While estate planning is important for married couples, it is arguably even more necessary for couples that live together without getting married. Without an estate plan unmarried couples won’t be able to make end-of-life decisions or inherit from each other.
Estate planning serves two main functions: determining who can make decisions for you if you become incapacitated and who gets your assets when you die. There are laws in place to protect spouses in couples that have failed to plan by governing the distribution of property in the event of death. If you do not have a will, property will pass to your spouse and children, or to parents if you die without a spouse or children.
But there are no laws in place to protect unmarried partners. Without a solid estate plan, your partner may be shut out of the decision making and the inheritance. The following are the essential estate planning steps that can help unmarried couples:
- Joint Ownership. One way to make sure property passes to an unmarried partner is to own the property jointly, with right of survivorship. If one joint tenant dies, his or her interest immediately ceases to exist and the remaining joint tenants own the entire property. This is also a good way to avoid probate.
- Beneficiary Designations. Make sure to review the beneficiary designations on bank accounts, retirement funds, and life insurance to make sure your partner is named as the beneficiary (if that is what you want). Your partner will not have access to any of those accounts without a specific beneficiary designation.
- Durable Power of Attorney. This appoints one or more people to act for you on financial and legal matters in the event of your incapacity. Without it, if you become disabled or even unable to manage your affairs for a period of time, your finances could become disordered and your bills not paid, and this would place a greater burden on your partner. Your partner might have to go to court to seek the appointment of a conservator, which takes time and money, all of which can be avoided through a simple document.
- Health Care Proxy. Similar to a durable power of attorney, a health care proxy appoints an agent to make health care decisions for you when you can’t do so for yourself, whether permanently or temporarily. Again, without this document in place, your partner might be shut out by other family members or forced to go to court to be appointed guardian. If it is important for all of your family members to be able to communicate with health care providers, a broad HIPAA release — named for the Health Insurance Portability and Accountability Act (HIPAA) of 1996 — will permit medical personnel to share information with anyone and everyone you name, not limiting this function to your health care agent.
- Will. Your will says who will get your property after your death. However, it’s increasingly irrelevant for this purpose as most property passes outside of probate through joint ownership, beneficiary designations, and trusts. Yet your will is still important for two other reasons. First, if you have minor children, it permits you to name their guardians in the event you are not there to continue your parental role. Second, it allows you to pick your personal representative (also called an executor or executrix) to take care of everything having to do with your estate, including distributing your possessions, paying your final bills, filing your final tax return, and closing out your accounts. It’s best that you choose who serves in this role.
- Revocable Trust. A revocable trust can be especially important for unmarried couples. It permits the person or people you name to manage your financial affairs for you as well as to avoid probate. You can name one or more people to serve as co-trustee with you so that you can work together on your finances. This allows them to seamlessly take over in the event of your incapacity.
Your attorney can help you determine the estate plan that is right for you and your partner.
Emotions can run high at the death of a family member. If a family member is unhappy with the amount they received (or didn’t receive) under a will, he or she may contest the will. Will contests can drag out for years, keeping all the heirs from getting what they are entitled to. It may be impossible to prevent relatives from fighting over your will entirely, but there are steps you can take to try to minimize squabbles and ensure your intentions are carried out.
Your will can be contested if a family member believes you did not have the requisite mental capacity to execute the will, someone exerted undue influence over you, someone committed fraud, or the will was not executed properly. (For more information on will contests, click here.)
The following are some steps that may make a will contest less likely to succeed:
- Make sure your will is properly executed. The best way to do this is to have an experienced elder law or estate planning attorney assist you in drafting and executing the will. Wills need to be signed and witnessed, usually by two independent witnesses.
- Explain your decision. If family members understand the reasoning behind the decisions in your will, they may be less likely to contest the will. It is a good idea to talk to family members at the time you draft the will and explain why someone is getting left out of the will or getting a reduced share. If you don’t discuss it in person, state the reason in the will. You may also want to include a letter with the will.
- Use a no-contest clause. One of the most effective ways of preventing a challenge to your will is to include a no-contest clause (also called an “in terrorem clause”) in the will. This will only work if you are willing to leave something of value to the potentially disgruntled family member. A no-contest clause provides that if an heir challenges the will and loses, then he or she will get nothing. You must leave the heir enough so that a challenge is not worth the risk of losing the inheritance.
- Prove competency. One common way of challenging a will is to argue that the deceased family member was not mentally competent at the time he or she signed the will. You can try to avoid this by making sure the attorney drafting the will tests you for competency. This could involve seeing a doctor or answering a series of questions.
- Video record the will signing. A video recording of the will signing allows your family members and the court to see that you are freely signing the will and makes it more difficult to argue that you did not have the requisite mental capacity to agree to the will.
- Remove the appearance of undue influence. Another common method of challenging a will is to argue that someone exerted undue influence over the deceased family member. For example, if you are planning on leaving everything to your daughter who is also your primary caregiver, your other children may argue that your daughter took advantage of her position to influence you. To avoid the appearance of undue influence, do not involve any family members who are inheriting under your will in drafting your will. Family members should not be present when you discuss the will with your attorney or when you sign it. To be totally safe, family members shouldn’t even drive you to the attorney.
Bear in mind that some of these strategies may not be advisable in certain states. Talk to your attorney about the best strategy for you. To find an experienced elder law attorney in your state, click here.
Among all the changes you must make when you move to a new state — driver’s license, voter registration — don’t forget your will.
While your will should still be valid in the new state, there may be differences in the new state’s laws that may make certain provisions of the will invalid. In addition, moving is a good excuse to consult an attorney to make sure your estate plan in general is up to date.
Property laws can vary from state to state. It is especially important to have your estate plan reviewed if you move from a common law state to a community property state (Arizona, California, Idaho, New Mexico, Louisiana, Washington, Nevada, Texas, Wisconsin, and Alaska) or vice versa. In a common law state each spouse’s property is owned individually, while in a community property state, property acquired during the marriage is considered community property. In addition, states may have different rules about when co-owned property may pass to the surviving owner and when it may pass under the will.
Other things to consider are whether there is any language you can add to the will to make it easier to probate in the new state and whether your executor still makes sense based on your new location. Other pieces of your estate plan may need updating as well. For example, the state may have different rules for powers of attorney or health care directives.
Many people periodically update their wills or other estate plans, but don’t update who will receive distributions from their retirement plans (such as IRAs and 401(k)s) upon their deaths. Every year you should review your entire estate plan, and the review should include retirement plan “beneficiary designations” to make sure they aren’t outdated. The following are some tips for naming a retirement plan beneficiary:
- It is important to name a beneficiary. Do not assume that your retirement plan will be distributed according to your will. If you don’t name a beneficiary, the distribution of benefits may be controlled by state or federal law or according to your particular retirement plan. Some plans automatically distribute money to a spouse or children. While others may leave it to the retirement plan holder’s estate, this could have negative tax consequences. The only way to control where the money goes is to name a beneficiary.
- You may want to designate a trust as your beneficiary. If your estate is more than the current estate tax exclusion ($11.4 million for 2019) and a large portion of it consists of retirement plans, it may make sense to direct that the plans be payable to a trust rather than to the surviving spouse. The trust must be properly drafted to avoid tax consequences, so consult with your attorney before doing this. If you want your money to go into a trust for your children, be sure to designate the trust as the beneficiary. If you name your children, the money will go directly to them.
- If you have major life changes, be sure to keep your retirement plan updated. If you get married or have children, you may want to change your beneficiary. Also, if your spouse was your beneficiary and you get divorced, your former spouse will still be the beneficiary — divorce does not automatically remove an ex-spouse as beneficiary. If you wish to remove a former spouse from the plan, you will have to fill out a new beneficiary designation form.
- Even if you don’t have big changes, you should review your beneficiary designation periodically. Your beneficiary may not be who you remembered it to be or it may be outdated. For example, if you named a charity as beneficiary, you will want to make sure the charity still exists. A Change of Beneficiary form can often be downloaded from the Web site of the firm holding the plan assets.
What will happen to your estate if your primary beneficiary does not survive you? If your will does not name an alternate beneficiary, your estate will be divided according to state law. The way the state divides your estate may not agree with your wishes. Your money may go to someone you don’t like or to someone who is unable to handle it.
For example, suppose your will divides your estate among your spouse and three children. If one child dies before you, do you want his or her portion of your estate to go to your grandchildren? To your other children? To your spouse? Or perhaps to a charitable organization or institution? Another issue to consider is whether the person who would inherit under the law is too young or has special needs. In that case, you may need a trust to protect the assets.
Double check your will to make sure it names an alternate beneficiary. And if you don’t already have a will, being able to name an alternate beneficiary is an important reason to create one.
Naming an alternate is a good idea for other provisions in your will as well. If you have young children, you should also consider naming an alternate guardian for your children in the event your first choice is unable to fulfill his or her obligation. In addition, you may want to appoint an alternate executor in case the first one cannot serve.
Contact your attorney to help you ensure you have considered all the possibilities.