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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 and even have children without formally tying the knot.
Because the state of California does not have “common law marriage” statutes, unmarried-but-living-together couples face a set of legal challenges that makes Estate planning even more relevant and important for them when it comes to:
- Division of joint property
- Hospital Visitation
- Guardianship of minor child(ren)
Why Is Estate Planning Especially Important for Unmarried Couples?
There is no “Common Law Marriage” in the State of California. The law does not extend spousal rights or tax incentives to unmarried couples, or couples who have not registered a Domestic Partnership with the California Secretary of State.
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 decedent's Estate in court.
It can be even more complicated for the couple if one partner becomes incapacitated. Add joint property and children into 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 child(ren).
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 that may happen to an unmarried couple.
By way of Estate planning, non-traditional couples can ensure that their property is distributed according to their wishes and that their end-of-life decisions are in line with their desires and will be carried out by the other partner.
In the event of separation, a cohabitation agreement can determine the manner of division of property and debts
What Happens If an Unmarried Partner Dies Without a Will?
To protect their partner from California laws that may otherwise disinherit them, unmarried couples should set up:
- Reciprocal Trusts
- Pour-over wills
- Advance health care directives
- Powers of attorney
- Visitation Agreements
These are Estate planning tools which will ensure that the couple is legally regarded similarly to their married counterparts.
Every unmarried couple should consider establishing:
Unmarried couples can set up Trusts and wills to ensure that the other partner is named as the Beneficiary of their assets and, possibly, the Trustee of the Trust and/or Executor of the Will. This enables the surviving partner to manage the assets in the event of incapacity or death.
It also allows the partner a priority of appointment in court over a deceased partner's parent or sibling.
Powers of Attorney for Property Management
These 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.
These will allow a partner to be the named as an Agent for:
- Make medical decisions
- Access medical records
- Make critical decisions, including termination of life support in end-of-life circumstances
- Direct organ donation, burial or cremation
Conversely, these decisions will legally fall on the partner's family members (parents or siblings) — again, to the complete exclusion of the other partner. In the absence of an advance health care directive, end-of-life decisions cannot be made without a court order.
Without such legal documents 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.
Moreover, unmarried individuals can be barred from visiting their partner in the hospital. Having an Advance Health Care Directive or a Visitation Authorization in place will ensure this won't happen to your partner.
Things can be even more complicated when the couple has minor children, one or more of whom are from a prior marriage/relationship. Such minor 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 they raise together. It is important to remember that such appointment will not override a biological parent's 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, life insurance beneficiary designations, or setting up business entities 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.
How Our Estate Planning Firm Can Help
There are many things to consider when designing an Estate plan as an unmarried couple. Our firm can help you create a comprehensive Estate plan based on your unique needs.