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
-
Stock Market Today: Trump Retreats, Markets RejoiceStocks rally, yields soften, the dollar rises, and even beaten-down names enjoy the wages of potential trade peace.
-
In Trump’s Economy Should 401(k) Savers 'Set It and Forget It?'It’s hard to bury your head in the sand when the markets are volatile. Here’s when it makes sense and when it doesn’t.
-
Bouncing Back: New Tunes for Millennials Trying to Make ItAdele's mournful melodies kick off this generation's financial playlist, but with the right plan, Millennials can finish strong.
-
Early-Stage Startup Deals: How Do Convertible Notes Work?Some angel investors support early startups by providing a loan in exchange for a convertible note, which includes annual interest and a maturity date.
-
SRI Redefined: Going Beyond Socially Responsible InvestingNow that climate change has progressed to a changed climate, sustainable investing needs to evolve to address new demands of resilience and innovation.
-
Here's When a Lack of Credit Card Debt Can Cause You ProblemsUsually, getting a new credit card can be difficult if you have too much card debt, but this bank customer ran into an issue because he had no debt at all.
-
Going to College? How to Navigate the Financial PlanningCollege decisions this year seem even more complex than usual, including determining whether a school is a 'financial fit.' Here's how to find your way.
-
Financial Steps After a Loved One's Alzheimer's DiagnosisIt's important to move fast on legal safeguards, estate planning and more while your loved one still has the capacity to make decisions.
-
How Soon Can You Walk Away After Selling Your Business?You may earn more money from the sale of your business if you stay to help with the transition to new management. The question is, do you need to?
-
Two Don'ts and Four Dos During Trump's Trade WarThe financial rules have changed now that tariffs have disrupted the markets and created economic uncertainty. What can you do? (And what shouldn't you do?)
