In today’s society, an increasing number of couples are choosing to live together without getting married. Unfortunately, this decision can lead to complications when it comes to estate planning. Without proper planning, these couples may face unintended consequences and unlikely but high impact financial risks, known as Black Swan events, which can significantly impact their future. This article will outline the dangers faced by unmarried couples and provide guidance on how to avoid these risks through strategic estate planning.
The Costs of Remaining Unmarried
Lack of Legal Recognition
One of the primary dangers of remaining unmarried is the lack of legal recognition for the couple’s relationship. While unmarried couples may consider themselves to be in a committed partnership, they are not automatically granted the same legal protections and rights as married couples. This can lead to complications in areas such as property ownership, inheritance, and decision-making in the event of incapacitation.
When a person dies without a will, their estate is distributed according to the intestacy laws of their jurisdiction. Under Arizona law and most state intestacy laws, your partner will have no claim to your estate under the intestacy laws which will leave assets to descendants and then your parents and their descendants. The primary risk in this situation is unintended disinheritance.
Health Care Decisions
In the event of a medical emergency or incapacitation, unmarried partners may not have the legal authority to make certain healthcare decisions on each other’s behalf. Under Arizona’s default laws, priority is given for adult children and parents. This can result in family members making decisions that the couple may not agree with, potentially leading to undesirable outcomes.
Potential Tax Implications
In addition to losing out on income tax advantages while alive, unmarried couples may face unfavorable estate tax implications, such as being unable to take advantage of the unlimited marital deduction or the portability of the federal estate tax exemption between spouses.
Strategies to Avoid these Unintended Consequences
Draft a Comprehensive Estate Plan
To avoid the potential risks and complications of remaining unmarried, couples should work with an experienced estate planning attorney to develop a comprehensive estate plan. This plan should include documents such as a will, durable power of attorney, and health care proxy. Creating an estate plan ensures that the couple’s wishes are respected and provides a clear roadmap for the distribution of their assets.
Use Trusts Strategically
Trusts are a valuable estate planning tool that can be used to provide for a partner while they are alive and ensure that the remaining assets are distributed according to your wishes after their death. By establishing a trust, you can leave assets to your partner to use and enjoy during their lifetime, while designating your bloodline, chosen beneficiaries, or a charity to receive the remainder of the assets upon your partner’s passing.
By utilizing trusts, you can control the asset distribution by specifying the terms under which your beneficiaries may access the funds. In addition, the trust is protected from creditors, further estate tax, and Medicaid.
Create a Cohabitation Agreement
To further protect their rights and interests, unmarried couples may choose to enter into a cohabitation agreement. This legally binding document can outline each partner’s rights and responsibilities, including property division, support obligations, and decision-making authority in the event of incapacitation.
Unmarried couples who live together face unique challenges when it comes to estate planning. Without proper preparation, these couples may encounter legal obstacles, unintended beneficiaries, and unfavorable tax implications. However, by implementing strategic estate planning techniques, such as drafting a comprehensive estate plan, utilizing trusts, and creating a cohabitation agreement, couples can successfully navigate these challenges and protect their assets and each other’s interests.
As an experienced estate planning attorney, I understand the potential dangers of remaining unmarried and the importance of addressing these risks proactively. Taking the time to plan now can help you and your partner avoid unforeseen complications and Black Swan events that may arise in the future, providing peace of mind and security for both of you. Don’t wait until it’s too late—contact me today to schedule a consultation and start the process of creating a comprehensive estate plan that will protect your assets, your relationship, and your future.