Tools to Minimize or Avoid Estate Taxes

September 20, 2023

The tax cuts of 2017 temporarily doubled the amount individuals could give away without paying taxes. However, those cuts are due to expire in 2026, pushing well-to-do Americans to move fast, says a recent article from The Wall Street Journal, “The Moves Wealthy Families are Making to Skirt Estate Taxes.” According to recently published stats from the Internal Revenue Service, wealth transfer began to escalate in 2021, with more than $182.6 billion given away. Nearly $100 billion went into trusts, some of which can last for generations. A total of roughly $14.8 went to charity. There are tools available to minimize or avoid estate taxes.

For Americans with a net worth over $10 million, it’s urgent to consider a range of moves before these tax cuts expire. There are a number of options, from simple gifts to heirs to setting up complex dynasty trusts to protect wealth over generations. The macabre alternative is to die before these cuts expire.

The $10 million figure in the Tax Cuts and Jobs Act of 2017 was indexed for inflation. For 2023, the combined gift and estate tax exemption is $12.9 million per individual, or $25.84 million per married couple. This is the amount you may give away during your life or at death tax-free.

Next year, the amount will be adjusted to $13.61 million. For 2025, it may be as high as $14 million per person. But in 2026, it will drop by half to about $7 million.

The tax cuts expire after December 31, 2025. Anyone facing an estate tax bill who hasn’t made any preparations will likely have a somber New Year’s Eve.

A couple who transfers their full exemption amount of $28 million by 2025, before the law sunsets, will benefit from $5.6 million in tax savings, if they die in 2026. If they make a gift to grandchildren, skipping a generation, there would be nearly $9 million in tax savings.

These tax savings might become significantly larger over time. The appreciation is exempt from the transfer tax system when money grows in trusts. Therefore, if the trust value goes up to $100 million at the time of death, the family could save $40 million in estate taxes at the current 40% rate. This is just the federal tax savings. There are also state estate-tax savings in states like New York that continue to levy their own estate taxes.

According to UBS and Credit Suisse’s global wealth report, about 1.5 million Americans have a $10 million to $50 million net worth, and nearly 125,000 worth even more.

Direct gifts of cash or securities are the simplest way to make gifts to reduce your estate. The limit on annual tax-free gifts is $17,000 for 2023. It is expected to increase to $18,000 in 2024. Anyone can make tax-free gifts of up to $17,000 to an unlimited number of people. These gifts don’t count against the larger $12.92 million combined gift and estate tax exemption. Gifts made over $17,000 require reporting to the IRS using Form 709.

Making gifts to a dynasty trust can preserve more wealth for children. The trust removes the assets from both your estate and your children’s estates, benefiting children, grandchildren, and future generations.

Trusts also offer asset protection. If assets are given to children directly, and they are sued or divorced, they could lose some or all of their assets. If gifts are made to a trust, it’s harder for a creditor to go after assets in the trust.

There are tools available to minimize or avoid estate taxes. Do a careful analysis with your estate planning attorney before you design a gifting program. Make sure that you have enough to maintain your lifestyle. There are instances where people are so eager to gift their assets they don’t plan for the impact of inflation or volatile markets. If you would like to learn more about estate taxes, please visit our previous posts.

Reference: The Wall Street Journal (Aug. 19, 2023) “The Moves Wealthy Families are Making to Skirt Estate Taxes”

Photo by Nataliya Vaitkevich

Consider Hiring a Lawyer for Medicaid Applications

August 24, 2023

Medicaid can be a complicated and ponderous process to navigate. As with many government programs, it is easy to make mistakes that could potentially devastate your family’s finances. You might consider hiring a lawyer for Medicaid applications. Film Daily’s recent article, “Do You Need a Lawyer to Apply for Medicaid?” says that hiring a lawyer for Medicaid applications can provide many benefits. Let’s look at some of the big ones:

Expert Knowledge: Attorneys specializing in Medicaid are well-versed in the complex rules and regulations of the program. They stay updated with policy changes and can provide accurate guidance based on your unique circumstances.

Maximizing Eligibility: An experienced elder law lawyer can help structure your finances and assets to maximize your eligibility for Medicaid. They can also advise you on strategies to protect your assets, while satisfying the program’s requirements.

Streamlined Application Process: A Medicaid application can involve a ton of paperwork and documentation. A lawyer can help you gather the necessary information, complete the application correctly and submit it on time, reducing the chances of delays or mistakes.

Handling Complex Situations: If your situation is complicated, like owning a business or having multiple sources of income, a Medicaid lawyer can work through the intricacies and ensure that all relevant information is presented correctly in your application.

Appeals and Legal Support: If your application is denied or there are other issues, a lawyer can represent you in appeals or hearings. They can advocate for your rights and help resolve any disputes that arise during the application process.

While hiring a lawyer when applying for Medicaid is not mandatory, their expertise can be invaluable in navigating the complexities of the program.

A lawyer specializing in Medicaid can provide guidance, streamline the application process, and help you maximize your eligibility.

Sit down as a family and consider hiring a lawyer for your Medicaid applications. Depending on your circumstances, hiring a Medicaid attorney can be beneficial in complex financial situations, long-term care planning, dealing with denied applications, or staying informed about changing regulations.

With the right legal support, you can also increase your chances of a successful Medicaid application. If you would like to learn more about Medicaid and estate planning, please visit our previous posts.

Reference: Film Daily (July 25, 2023) “Do You Need a Lawyer to Apply for Medicaid?”

Photo by Alex Green

Costly Social Security Mistakes to Avoid

August 2, 2023

Social security was created to do just what it’s title intends – to help bring some financial security to seniors beyond retirement age. With so many ways to claim benefits, especially if you are married or were divorced at some point in your life, small mistakes can add up to a big difference in the amount of Social Security benefits you receive, says a recent article, “11 Social Security Mistakes That Can Cost You a Fortune” from Nasdaq. With so many Americans relying on social security benefits to help supplement their lives, there are some costly social security mistakes to avoid.

Not checking your earnings record during your working life can add up to significant losses. Even if you’re decades away from claiming, you should check your earnings record annually since this is what Social Security benefits are based on. Common mistakes include employers recording incorrect earnings or earnings not showing up because you changed your name and the name change wasn’t processed correctly.

Check your statement annually to avoid losing the right number of benefits because of earnings record mistakes. If you see an error, send proof of your earnings to the Social Security Administration. You might submit your W-2 form if you’re a salaried employee or your tax return if you are self-employed. Once the SSA verifies your claim, your record will be corrected. This is a “sooner is better than later” task because you may not have a paper trail going back 30 years.

Another mistake people make is not working long enough. To qualify for Social Security, you need at least 40 work credits. Taxpayers earn up to four credits each year based on earnings. For example, in 2023, you must earn $1,640 to earn one credit or $6,560 to earn four credits. Benefits are calculated based on the average of the 35 highest earning years. If you haven’t worked for 35 years, $0 will be averaged for each year you don’t have earnings.

It’s wise to do the calculations for Social Security before retiring. As you approach your retirement date, check your earnings statement first to be sure you have enough credits to qualify for Social Security. If you don’t have 35 years, consider working another year or two. If you worked at a job where you weren’t paying into Social Security, adding another year of work could ensure you qualify and may also boost your monthly benefit amount.

Taking Social Security too early can take a big bite out of benefits. While everyone eligible can start taking benefits at age 62, for everyone born after 1959, the reduction for benefits at age 62 is 30%. This lower benefit is permanent and won’t increase until you reach Full Retirement Age (FRA). It’s best to wait at least until FRA. If you can wait past FRA, your benefits could increase by as much as 8% per year up to age 70.

Another mistake is waiting too long to claim benefits. If you live to the average life expectancy, it won’t matter if you claim benefits too early or late. The amount of the benefit reduction for claiming early and the increase in delaying a claim evens out. But if you are in poor health or have cash flow trouble, a benefit check at a younger age could be the right move.

If you file for Social Security benefits solely on your earnings record, you might miss out on a larger benefit. Let’s say you were a stay-at-home parent while your spouse worked. You may not have enough work credits to qualify, or your benefits may be small. However, you could still qualify for benefits under your spouse’s work record. Check to see how much you would be eligible to receive under your spouse’s work record before deciding how to claim benefits.

If divorced, you might claim benefits under your ex-spouse’s earnings record if you meet all the requirements. Suppose the marriage lasted at least ten years. In that case, you are 62 or older, unmarried, and your ex-spouse is eligible to receive Social Security retirement or disability benefits. Your benefit from your work is less than what you would receive under your ex-spouse’s earnings record; it’s worth exploring this option.

If you are married, it’s best to coordinate claiming strategies with your spouse. A low-earning spouse could start claiming benefits based on the higher-earning spouse’s income at full retirement age. Meanwhile, the higher-earning spouse delays benefits to increase retirement credits.

Finally, remember that up to 85% of Social Security benefits could be subject to federal income taxes if you earn substantial income from wages or dividends. The percentage of benefits subject to income taxes depends on the couple’s combined income, which includes the household Adjusted Gross Income (AGI), any nontaxable interest income, and half of your Social Security benefits. The best way to avoid these costly social security mistakes it to make sure you are working closely with your estate planning attorney and financial advisor or CPA. If you would like to learn more about social security benefits and estate planning, please visit our previous posts.

Reference: Nasdaq (July 2, 2023) “11 Social Security Mistakes That Can Cost You a Fortune”

Photo by Markus Winkler

Estate Tax Exemptions available for Married Couples

August 1, 2023

Estate tax avoidance and mitigation are central considerations for financial security for surviving spouses. Estate tax exemptions are available for married couples to help ensure a surviving spouse is cared for. According to a recent article from The National Law Review, “Basic Estate Tax Planning for Married Couples: Opportunities For Use Of Estate Tax Exemptions,” the first spouse may leave property of unlimited value to the surviving spouse without incurring any estate tax upon the death of the first spouse. This unlimited marital deduction shields assets from estate taxes and helps support the surviving spouse. Assets can be distributed directly to the surviving spouse or through an indirect transfer to a qualifying trust for the surviving spouse’s benefit.

Most couples use trusts for asset protection, most commonly for the preservation of assets for children from a prior marriage and asset management help for the surviving spouse. The marital deduction is a valuable estate tax avoidance tool for married couples.

However, estate tax law is not generous for non-spouse beneficiaries. Legislation passed in 2013 allowed individuals to leave assets totaling $5 million in value (indexed to inflation since 2011) to non-spouse, non-charitable beneficiaries and then doubled this amount following the Tax Cuts and Jobs Act to $10 million. However, if additional legislation is not passed before the sunset date of January 1, 2026, this amount will be cut in half.

In 2013, Congress made the portability of a spouse’s estate tax exemption permanent. This allows the surviving spouse to capture and use the first decedent spouse’s remaining estate tax exemption and the surviving spouse’s own exemption. To capture this estate tax exemption, an estate tax return must be filed in a timely manner after the death of the first spouse.

If spouses have a total estate exceeding available exemptions, they may use what is known as the “Credit Shelter Trust Planning” or “Optimal Marital Deduction Planning.” A trust is established, funded with assets of the first spouse to die, to use the spouse’s estate tax exemption. Assets in the trust are available to the surviving spouse for life but are not included in the survivor’s taxable estate upon their death. The goal benefits the surviving spouse and reduces any estate tax to maximize benefits for the children and grandchildren.

Another frequently used tool is the “disclaimer” plan, which allows the survivor to move certain assets into a trust for the survivor’s benefit rather than receiving assets directly. For married couples with estates valued at less than their available estate tax exemptions, a disclaimer plan provides the “all to spouse” plan and the option to implement a tax-advantaged trust. All assets are left to the survivor; then, based on the value of the first spouse’s estate, the surviving spouse may choose to disclaim the first spouse’s assets and divert them to a tax-advantaged trust.

Married couples should take advantage of the estate tax exemptions available to them to help protect a surviving spouse financially. It must be noted that there is no “one-size-fits-all” plan for married couples who wish to care for their surviving spouse, children, and grandchildren. It’s important to understand the basic estate tax avoidance or mitigation tools to create an estate plan to consider the couple’s planning goals and values. An experienced estate planning attorney can create a comprehensive estate plan to suit each family’s needs. If you would like to learn more about the estate tax, please visit our previous posts.

Reference: The National Law Review (June 24, 2023) “Basic Estate Tax Planning for Married Couples: Opportunities For Use Of Estate Tax Exemptions”

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Be cautious using Portability in a Second Marriage Estate Plan

July 19, 2023

Be cautious using portability in a second marriage estate plan. Despite its advantages, portability isn’t always the solution, even as it’s been used to take the pressure off couples to focus on using as much estate and gift tax exclusion as possible after the first spouse’s death. According to a recent article from Wealth Management, “Portability and Second Marriages,” portability might be a mistake.

The couple and their estate planning attorney need to consider whether leaving the executor with the discretion to use portability is appropriate, and if it is, who the executor should be and how the estate tax burden should be allocated.

The problem with portability in nonstandard families is this: it allows the surviving spouse to use the DSUE (Deceased Spouse’s Unused Exemption) amount personally, instead of requiring it be used for the beneficiaries of the first spouse to die. It’s almost like leaving assets outright to the surviving spouse. In the case of a testate decedent, Treasury regulations provide that only the executor may make the portability elections. The executor should probably not be also a beneficiary and should not be responsible for making the portability election.

Let’s say the estate isn’t large enough to require an estate tax return filing. If the executor is a child from a prior marriage, they may not choose to incur the expense of filing an estate tax return solely to make the portability election for the second spouse. Instead of having the family involved in a disagreement over the need for a return or determining who will pay for its preparation, a better option is to have the estate plan direct whether an estate tax return should be filed to elect portability and if this is done, establish who is responsible for the cost of the preparation and filing.

In complex families with children from a prior marriage, a Qualified Terminable Interest Property (QTIP) trust is used for the surviving spouse, with the trust assets eventually passing to the client’s descendants. However, if the QTIP trust is combined with portability, the estate plan may not operate as intended.

Here’s an example. Ted marries Alba several years after his first wife, Janine dies. Ted has three children from his marriage to Janine. He bequeaths most of his estate to a QTIP trust for Alba and the remainder to his children, naming Alba his executor. At Ted’s death, Alba elects QTIP treatment for the trust and portability. She then makes gifts of her assets to her family using Ted’s DSUE amount. Alba dies with an estate equal to her basic exclusion amount, which she also leaves to her family. The QTIP trust pays estate tax, and Ted’s children receive no benefit from Ted’s exclusion amount.

Even if Alba didn’t make gifts to her family, assuming her estate was large enough to absorb most of her applicable exclusion amount (including the DSUE), the QTIP trust would have to contribute to pay the estate taxes attributed to it unless the estate plan waives reimbursement. Thus, the QTIP trust could bear most or all of the estate tax at the death of the second spouse, while the second spouse’s personal assets are sheltered in part by the deceased spouse’s DSUE amount.

In cases like this, the prudent course of action may be to use traditional credit shelter/marital deduction planning. If there’s a DSUE amount available, the estate plan could direct whether it will be used and how the tax burden on the QTIP trust is handled.

Be cautious using portability in a second marriage estate plan. An experienced estate planning attorney will look at the family’s situation holistically and evaluate which strategies are most appropriate to distribute the property per the parent’s wishes to minimize taxes and ensure that the estate plan achieves its goals. If you would like to read more about estate planning for second marriages, please visit our previous posts.

Reference: Wealth Management (June 21, 2023) “Portability and Second Marriages”

There are Benefits to Creating A Life Estate

June 20, 2023

Maintaining a home and transferring ownership after the death of a spouse can be complicated. There are some benefits to creating a life estate. While the life tenant is still alive, they’re in control of the property in all respects, except they can’t sell or encumber it without the consent of the remainderman. After the life tenant passes, the remainderman inherits the property and avoid probate. Life estates can simplify the estate planning process, so that a homeowner can easily pass property down to the next generation upon death.

Quicken Loans’ recent article entitled, “What Is A Life Estate And What Property Rights Does It Confer?” says that by understanding the features of a life estate and creating one at the right time, you can enjoy these benefits:

Property Avoids Probate. Property held in a life estate transfers ownership to the remainderman, saving everyone time and headaches. It also eliminates the complications that arise when trying to spell out your intentions for your property in a will.

Property No Longer Part Of The Estate. Once your state’s Medicaid look-back period has passed, a property transferred through a life estate won’t count against your eligibility.

Keeps Seniors In Their Homes. Even though a life estate effectively transfers property ownership to the remainderman, the life tenant has guaranteed residency, if desired, for the rest of their life.

While a life estate can be a helpful tool, it does have several drawbacks:

The Property Is Vulnerable To Debts Of Heirs. Because a life estate transfers property rights to a designated heir, the heir’s creditors may have the right to seize inherited assets to cover any outstanding debts. This would contradict the life tenant’s wishes to pass their assets on directly to the heir.

The Heirs’ Rights To The Property Vest At Creation. Once you create a life estate, property rights vest in your heir. You can’t take back those rights without the heir’s consent.

There are some real benefits to creating a life estate. Because you can’t reverse a life estate without the consent of both the life tenant and remainderman, you should understand each facet of the contract before committing to it. Ask an experienced estate planning attorney to help you. If you would like to learn more about managing property in an estate plan, please visit our previous posts.

Reference: Quicken Loans (August 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”

Pitfalls of Gifting and Joint Ownership

June 19, 2023

As with many things related to estate planning, do-it-yourself solutions appearing to be fast and easy fixes often become problems for parents and their children. Trying to simplify asset protection by gifting is loaded with risks, says a recent article, “SENIOR SCENE | Pitfalls of gifting and joint ownership of assets” from The Sentinel-Record. There can be many pitfalls of gifting and joint ownership.

Most notably, the laws governing eligibility for Medicaid used for nursing home care require a 60-month “look-back” period, where any transfer of assets for any reason makes the person ineligible for Medicaid benefits up to 60 months or even longer from the date the gift was made.

Secondly, creditors of the person making a gift could claim any transfer was a fraudulent transfer made in an attempt to defeat the rights of creditors to make a claim. Both parent and child could end up in costly, time-consuming litigation over creditor claims.

Third, and perhaps most problematic, is the chance for the child’s creditors to attach the assets in order to satisfy a claim against the child. This could also occur if the child is embroiled in a divorce—the assets could be considered a marital asset by the court.

Gifting assets was a popular estate planning strategy to reduce or eliminate estate taxes in the past. Nevertheless, in light of the very high current federal estate tax exemptions, this is only used for some families.

Another disadvantage of gifting is the transfer of tax cost basis from the parent to the child for capital gains tax purposes. As a result, the child would be forced to pay capital gains taxes on the increase in value from the parent’s tax cost—typically the original purchase price—versus the ultimate sales price.

Contrast this with a child who inherits an asset at death from a parent. When the child inherits the asset at death, the asset receives a step-up in tax basis to its date-of-death value. This is one of the most favorable tax rules remaining, which is lost when gifting during life is used.

Another problem occurs when seniors make assets jointly owned, especially bank accounts. The bank often encourages this, trying to be helpful so the child may pay the parents’ bills. However, by placing the child’s name on the account, the parent may be subjecting their account to potential creditor claims of their children.

In addition, the jointly owned account passes only to the surviving owner, so the estate plan may be circumvented by having the assets in the account pass to the one child rather than passing to all the remaining trust under a will or trust.

An estate plan created by an experienced estate planning attorney can eliminate many pitfalls of gifting and joint ownership. Before making gifts or establishing joint accounts, meet with an estate planning attorney to learn how to achieve your goals, including planning for Medicaid, without putting your assets at risk. If you would like to learn more about asset protection, please visit our previous posts.

Reference: The Sentinel-Record (May 28, 2023) “SENIOR SCENE | Pitfalls of gifting and joint ownership of assets”

Who is Authorized to Amend a Trust?

June 7, 2023

Procrastination is the most common mistake in estate planning when people don’t create a will and trusts and when documents are not updated. For one family, a revocable trust created when both parents are living presents some complex problems now, when the surviving wife wants to make changes but is suffering from serious health issues. So who is authorized to amend a trust?

As described in the article “Estate Planning: Who can amend the trust” from NWI Times, this scenario requires a careful review of the trust document, which should contain instructions about how it can be amended and who has the authority to do so. An estate planning attorney must review the trust to ensure it can be amended.

If the trust allows the surviving settlor to amend the trust, the authority to amend it may only be given to the surviving settlor. The mother may be permitted to amend the trust. However, it can’t be anyone acting on her behalf.

If the language in the trust makes the power to amend personal, a guardian or an attorney-in-fact likely won’t be able to amend the trust. Likewise, if the mother is incapacitated and cannot do this herself, the trust may not be amendable while she is ill or disabled.

However, if the trust allows the surviving settlor to amend the trust and the power is not personal, a legal representative, such as a guardian or an attorney-in-fact, may be able to amend the documents for her, if they have the authority to do so under the terms of the trust.

Anyone contemplating this amendment must be aware of any “self-dealing” issues. The legal representative will be restricted to making changes only for the benefit of the beneficiaries and should be mindful before attempting to amend the trust.

Suppose the authority to amend doesn’t exist or other restrictions make it impossible, depending on the state’s laws. In that case, it may be possible to docket the trust with the court and obtain a court order authorizing the trustee to depart from the terms of the trust or even amend the document.

Accomplishing this is far easier if all involved agree with the changes to be made. Unfortunately, if any interested parties object, it may lead to litigation.

Depending upon the desired change, entering into a family settlement agreement may be possible after the mother dies. If everyone is willing to sign off, an agreement can be written authorizing the trustee to deviate from the terms of the trust. This will also require the guidance of an estate planning attorney to ensure that the agreement follows the state’s laws.

If family members disagree with the change, the trustee can refuse to accept the settlement agreement to protect themselves from potential liability. It is wise to sit down with your estate planning attorney and ensure you and your loved ones are familiar with who is authorized to amend a trust. If you would like to learn more about trusts, please visit our previous posts.

Reference: NWI Times (May 7, 2023) “Estate Planning: Who can amend the trust”

Photo by Karolina Grabowska

You Need to File an Estate Tax Return

June 5, 2023

Even if your spouse has died and left all their assets to you and no estate tax is due, you still need to file an estate tax return. Doing so may save your family significant sums in estate taxes after your death, according to a recent article from Forbes, “5 Reasons You Must File An Estate Tax Return (Even When No Tax Is Due).”

The estate tax is a one-time tax due nine months after the date of death. The federal threshold in 2023 is $12,920,000 for an individual. Many states have their own estate taxes, with thresholds ranging from $1 million in Oregon and Massachusetts to $12,920,000 in Connecticut. Your estate planning attorney can advise which assets are included in calculating this amount. For example, many people are surprised to learn that proceeds from their life insurance policies are taxable on their death, unless the policy is owned in an irrevocable trust.

No estate tax is due if your assets are left to your surviving spouse because of the unlimited marital deduction. You get an unlimited deduction for the assets left to your spouse. Spouses can leave any amount to their surviving spouse tax-free, whether $2 or $2 million. However, there are reasons to file an estate tax return. The law requires it, even if the value of your estate assets is below the filing threshold.

If you’ve done estate planning, your spouse most likely has a trust that will break into various sub-trusts upon her death. As the surviving spouse, you’ll need to fund those trusts and apportion assets to them, which is done through the estate tax return. The estate tax return establishes the value of what those trusts are funded with.

Critical tax elections. When you file an estate tax return for your spouse, you’ll make certain elections to determine what assets are included in your estate when you die.

Tax savings for heirs. If your spouse has not used up all their $12,920,000 exemption, you can lock in their unused portion and port it to your estate tax return when you die. The portability of the deceased spouse’s unused exemption could potentially save your children millions of dollars in estate taxes in the future.

The combined exemption for two spouses is currently $25,840,000. The federal estate tax rate can be as high as 40%. By locking in the unused exemption, you could save more than $5 million in estate taxes that would otherwise be due on your death. Even if your assets are not in the $12 million to $25 million range, this is still smart because your assets could increase in value, and the estate tax thresholds are scheduled to drop to $5 million in 2026 (adjusted for inflation).

More tax savings for grandchildren. If your spouse has yet to use all of their general-skipping transfer tax (GST Tax) exemption, you can lock in their remaining GST Tax exemption. The GST Tax is a 40% tax on assets, if you “skip” your children and leave them directly to your grandchildren or in a trust that will eventually be distributed to them. The amount of GST Tax exemption is the same as the estate tax exemption, $12,920,000 per person in 2023. Therefore, the amount is the same, but they are different taxes.

You need to file an estate tax return to ensure that you have complied with tax law. Work with an estate planning attorney who has experience handling probate and trust administration. If you would like to learn more about the estate tax, please visit our previous posts.

Reference: Forbes (May 10, 2023) “5 Reasons You Must File An Estate Tax Return (Even When No Tax Is Due)”

Unmarried Couples must have Estate Planning Documents

June 1, 2023

Many couples make the choice not to wed, even after being together for decades, for personal or financial reasons. For example, some clients don’t marry so as not to impact their children’s inheritance, while others would rather not bother with the legalities, says a recent article, “Estate Planning for Unmarried Couples” from My Prime Time News. In some cases, marriage would cause the couple to lose pension or Social Security benefits, if they remarried. However, unmarried couples must take extra care to have estate planning documents in place to make their wishes clear and to protect each other in case of incapacity, serious illness and, ultimately, death.

From any statutory priority, a significant other does not have the legal rights granted to a spouse to serve as a personal representative or executor for their loved one’s estate. In addition, there is no statutory right to inherit property, including any family allowance or exempt property allowance.

The significant other also has no rights regarding acting as guardian or conservator for their partner and no ability to make medical decisions, if they become incapacitated or disabled.

All of these issues, however, can be resolved with the help of an estate planning attorney. Both partners should execute a will, health care power of attorney, general power of attorney and a living will to protect each other.

The last will and testament designates a personal representative or executor who will be in charge of the decedent’s estate and inherit the person’s assets. With no will, a partner will inherit no assets, unless they are owned jointly or the partner is a named beneficiary.

Having a health care power of attorney and a financial power of attorney gives a partner the power to make decisions if their loved one becomes incapacitated. In addition, these power of attorney documents are necessary for adult children to have priority in making these decisions, and guardianship proceedings will be required if there are no children or family members.

Disputes between the adult children of unmarried couples are common if a comprehensive estate plan still needs to be completed. For example, imagine a partner of many decades becoming too ill to communicate their end-of-life wishes. Even after a lifetime together, the adult children will have the legal upper hand, regardless of what the couple has discussed as their wishes for this situation.

It may be challenging for unmarried couples to discuss their living arrangements and family dynamics. However, the experienced estate planning attorney has met with and helped families of all kinds and will have the knowledge to prepare an estate plan to address all family dynamics.

Unmarried couples must have estate planning documents in place. Once this work is done, the couple can rest easy, knowing they have protected each other in the best and worst circumstances. If you would like to learn more about planning for unmarried couples, please visit our previous posts.

Reference: My Prime Time News (May 1, 2023) “Estate Planning for Unmarried Couples”

Category: Couples

Tools to Minimize or Avoid Estate Taxes

Consider Hiring a Lawyer for Medicaid Applications

Estate Tax Exemptions available for Married Couples

Be cautious using Portability in a Second Marriage Estate Plan

There are Benefits to Creating A Life Estate

Pitfalls of Gifting and Joint Ownership

Who is Authorized to Amend a Trust?

You Need to File an Estate Tax Return

Unmarried Couples must have Estate Planning Documents

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