The relationship landscape has significantly changed 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%; 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. However, with that flexibility comes challenges, especially regarding estate planning.
Long-term cohabitation without the bounds of matrimony is now a typical lifestyle decision. Couples establish families, acquire properties, and even raise children outside a conventional marriage. While this approach provides autonomy and flexibility, it presents distinct difficulties when creating an estate plan. From outlining property rights to crucial health care determinations, navigating estate planning for cohabitating couples, particularly those in their golden years, can be challenging.
Autonomy and Implications
An advantage for unmarried cohabitants is 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 to avoid substantial tax liabilities.
Other factors to keep in mind:
Real Property
When it comes to real property, the lines can get blurred. 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 highlight the importance of planning for property rights in estate plans, such as giving the property to the partner or 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 specified health care proxy. Regardless of the relationship’s longevity, a cohabiting partner would not automatically have any legal authority to obtain medical information, make medical decisions for the partner, or even have access to a hospitalized partner, which makes instituting a health care power of attorney essential, ensuring the partner’s voice is heard in crucial medical situations.
Blending Families and Finances
Modern unions often mesh the complexities 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 essential, 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 wed legally.
While forgoing marriage is a way to sidestep legalities, it is not simple. Cohabitation presents a progressive alternative to marital confines. Still, it demands a meticulous understanding of estate planning nuances. Couples must arm themselves with the requisite legal knowledge, ensuring their twilight years are as legally sound as they are emotionally fulfilling.