The landscape of relationships has seen a significant shift over the past several decades.
According to a study by the National Center for Family & Marriage Research, the marriage rate in 1970 was 76.5%, and today, it stands at 31%. These days, an increasing number of couples at all stages of life are choosing the path of cohabitation over the legal binds of marriage, but with that flexibility comes challenges, especially regarding estate planning.
Long-term cohabitation without the bounds of matrimony is now a common lifestyle decision. Couples establish families, acquire properties and even raise children outside of a conventional marriage. While this approach provides autonomy and flexibility, it presents distinct difficulties when creating an estate plan. From delineating property rights to crucial health care determinations, navigating estate planning for cohabitating couples, particularly those in their golden years, can be challenging.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Autonomy and its implications
For unmarried cohabitants, there's an advantage: the autonomy in dictating the distribution of one's assets. Contrary to those in a marital bond, there's no legal obligation to leave anything to a partner. In many jurisdictions, the law mandates that significant portions of one's assets be left to the surviving spouse. Such stipulations don't apply to cohabiting couples who are not legally married.
Yet, this independence has its own set of limitations. From a tax perspective, assets directed to a surviving spouse are generally sheltered from estate taxes. For a non-spouse, transferring assets might attract significant estate taxes. Some couples might contemplate inter vivos gifts to their partner — typically made to children — to avoid substantial tax liabilities.
Other factors to keep in mind:
Real property. When it comes to real property, the waters can get muddied. Consider an unmarried individual acquiring a property solely under his name, excluding his partner to sidestep potential gift taxes. If he were to pass away, his partner might be left without any legitimate claim to that property. Such circumstances emphasize the importance of planning for property rights in estate plans, such as leaving the property to the partner, or to a trust for the partner’s use for life.
Medical directives. Beyond real property and other assets is the even more delicate matter of medical decisions. Legal decision-making might default to a lawful spouse or kin without a designated health care proxy. Regardless of the relationship's longevity, a cohabiting partner would not automatically have any legal authority to obtain medical information or make medical decisions for the partner, or even have access to a hospitalized partner. This makes instituting a health care power of attorney essential, ensuring the partner's voice is heard in critical medical situations.
Blending families and finances. Modern unions often mesh the intricacies of combined families and assets. For those with former spouses or children from a prior relationship, deciding to cohabitate later in life can invoke many emotions and concerns of the children. If an individual chooses to remarry, prenuptial agreements become paramount, as children from previous unions may have apprehensions regarding their inheritances and perhaps the motives of the new spouse. However, prenuptial agreements are not an option for couples who choose not to legally wed.
While forgoing marriage is a way to sidestep legalities, it is not that simple. Cohabitation presents a progressive alternative to marital confines, but it demands a meticulous grasp of estate planning nuances, and couples must arm themselves with the requisite legal knowledge, ensuring their twilight years are as legally sound as they are emotionally fulfilling.
Related Content
-
With Fixed Indexed Annuities, Zero Is Your HeroFixed indexed annuities are retirement tools that can offer potential growth as well as principal protection by limiting market risk. Here's how they work.
-
Before Buying Your First Home, Get These Three Ducks in a RowWith mortgage rates higher than we're used to, making sure you can comfortably afford to buy your first home is more important than ever.
-
With Fixed Indexed Annuities, Zero Is Your Hero
Fixed indexed annuities are retirement tools that can offer potential growth as well as principal protection by limiting market risk. Here's how they work.
-
Before Buying Your First Home, Get These Three Ducks in a Row
With mortgage rates higher than we're used to, making sure you can comfortably afford to buy your first home is more important than ever.
-
From Trusts to Taxes: Is Your Estate Plan Ready?Leaving a legacy can't be left up to chance. You need an estate plan that takes advantage of all the tools available, including possibly an irrevocable trust.
-
Three Key Items to Evaluate When Choosing a 721 ExchangeA REIT's debt levels, interest rate issues and financial performance are important factors when deciding which DST with a 721 exchange exit strategy to invest in.
-
Choosing a Corporate Trustee: The Pros and ConsThe impartiality and dependability of a corporate trustee are key benefits, but some of the disadvantages could be deal-breakers.
-
The FDIC Is From the Government and Really Is Here to HelpThe FDIC has spent more than nine decades in action, so let's take a look at what it does and why it's so important for consumers.
-
Four Signs It's Time to Sell a StockThere's plenty of advice out there on when to buy a particular stock, but developing a strategy for holding or selling an investment is equally important.
-
Interest Rate Cuts and Inflation: What's Really Going On?For more than two years, we've heard a steady drumbeat of news highlighting inflation and its impact on interest rates. The correlation seems clear, but the issue is actually more complex.
