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Trusts For Unmarried Couples

Unmarried couples who live together as a family unit are often referred to as a “non-traditional” couple. The reality is that, more and more people choose to cohabit together as a family, even have to children, without formally tying the knot. Such unmarried, “non-traditional” couples are becoming more and more popular, or “traditional.” 

Because the State of California does not have “common law marriage” statutes, THE unmarried-but-living-together couples face a set of legal challenges when it comes to incapacity, death or separation, which make estate planning even more relevant and important for them.

The law does not extend spousal rights or tax incentives to unmarried couples, as it does to their legally married counterparts. Unless an unmarried couple has in place certain legal documents, upon the death of one partner, the surviving partner (because they don’t qualify as a “surviving spouse”) has no inheritance rights or rights to represent the Estate in court. It can be even more complicated for the couple if one partner becomes incapacitated, but is not deceased. Add joint property and children in the mix, and the lack of such estate planning can turn into a nightmare for all parties involved: the family of the deceased, as well as the surviving partner, and/or their child(ren).

For that reason, it is wise for unmarried couples to set up an estate plan to protect each other from the unintended consequences of separation, incapacity or death. By way of estate planning, non-traditional couples can ensure that their property is distributed according to their wishes, that their end-of-life decisions are in line with their desires, and will be carried out by the other partner. And, in the event of separation – a co-habitation agreement can determine the manner of division of property and debts.


What Happens if Unmarried Partner Dies Without a Will

To protect his or her partner from California’s laws that may otherwise disinherit them, unmarried couples should set up reciprocal trusts, pour-over Wills, and powers of attorney.  These are the basic estate planning tools which will ensure that the couple is legally regarded similarly to its married counterpart.

Wills and Revocable Trusts. Unmarried couples can set up trusts and wills to ensure that the other partner is named as beneficiary of their assets, and possibly – the Trustee of the Trust and/or Executor of  the Will, to allow such partner the ability to manage the assets in the event of incapacity or death, and to allow such partner the priority of appointment in Court over a deceased partner’s minor child, or his/her parents.

Powers of attorney are essential to appoint a partner as the Agent authorized to conduct personal and financial affairs in the event of incapacity of a partner. In the absence of such Power of Attorney, the incapacitated partner’s family members will have priority of appointment in Court in a Conservatorship proceeding they can bring, to the complete exclusion of the other (non-incapacitated) partner.

Advance Health Care Directives will allow a partner to be the named  Agent for making medical decisions, access medical records, and make critical decisions including termination of life support in end-of-life circumstances. Conversely, these decisions will legally fall on the partner’s family members – again, to the complete exclusion of the other partner. And, in the absence of an Advance Health Care Directive, end-of-life decisions cannot be made without a court order.

Without such legal appointments in place, the incapacitated/deceased partner’s Family members can completely freeze out, for all intents and purposes, the non-incapacitated Partner from all decision-making.

Guardian Nominations. Things can be even more complicated when the couple has children, one or more of whom are from a prior marriage/relationship. Such child(ren) can be taken away from the custody of the surviving partner, because the deceased partner’s own family members would have priority of appointment as the child’s Guardians. For that reason, an unmarried couple should take extra care to appoint each other as Guardians of any minor children raise together. (With that being said, it is important to remember that such appointment will not override a biological parent’s constitutional right as Guardian of the person of such child).

Tax Planning Considerations for Unmarried Couples

Because unmarried couples do not have the benefit of the federal unlimited marital deduction and other tax advantages, unmarried couples may wish to consider gifting strategies aimed to limit the amount of estate tax that may be due at the death of a partner. Such strategies can include the traditional lifetime gifting options, as well as setting up limited liability companies to minimize tax liability on transfer of assets to the other partner.

Limited Liability Companies (“LLCs”) Unmarried couples who plan to own real property together for investment purposes may form an LLC and title investment property they purchase together in the name of the LLC, while each partner takes a membership interest in the LLC. In this case, the terms of the LLC’s Operating Agreement will govern how the property will be managed, invested, and distributed, and will provide additional security to both partners in the event that one partner dies, or the couple separates. An LLC is a pass-through entity and provides beneficial tax treatment, while at the same time a two-member LLC adds the insulation from personal liability that might arise from such ownership.

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