Can Unmarried Couples have an Estate Plan?

For unmarried couples, having an estate plan might be even more important than for married couples, especially if there are children in the family. The unmarried couple does not enjoy all of the legal protection afforded by marriage, but many of these protections can be had through a well-prepared estate plan.

A recent article “Planning for unmarried couples” from nwi.com explains that in states that do not recognize common law marriages, like Indiana, the state will not recognize the couple as being married. However, even if you learn that your state does recognize a common law marriage, you still want to have an estate plan.

A will is the starting point of an estate plan, and for an unmarried couple, having it professionally prepared by an experienced estate planning attorney is very important. An agreement between two people as to how they want their assets distributed after death sounds simple, but there are many laws. Each state has its own laws, and if the document is not prepared correctly, it could very easily be invalid. That would make the couple’s agreement useless.

There are also things that need to be prepared, so an unmarried couple can take care of each other while they are living, which they cannot legally do without being married.

A cohabitating couple has no right to direct medical care for each other, including speaking with the healthcare provider or even seeing their partner as a visitor in a healthcare facility. If a decision needs to be made by one partner because the other partner is incapacitated, their partner will not have the legal right to make any medical decisions or even speak with a healthcare provider.

If the couple owns vehicles separately, the vehicles have their own titles (i.e., the legal document establishing ownership). If they want to add their partner’s name to the vehicle, the title needs to be reissued by the state to reflect that change.

If the couple owns a home together, they need to confirm how the home is titled. If they are joint tenants with rights of survivorship or tenants in common, that might be appropriate for their circumstances. However, if one person bought the home before they lived together or was solely responsible for paying the mortgage and for upkeep, they will need to make sure the title and their will establishes ownership and what the owner wants to happen with they die.

If the wish is for the surviving partner to remain in the home, that needs to be properly and legally documented. An estate planning attorney will help the couple create a plan that addresses this large asset and reflect the couple’s wishes for the future.

Unmarried cohabitating adults need to protect each other while they are living and after they pass. A local estate planning attorney will be able to help accomplish this.

Reference: nwi.com (Jan. 24, 2021) “Planning for unmarried couples”

What Do I Need to Know About Owning Property with Someone Other than My Spouse?

Have you ever considered owning property jointly with a family member, friend, or a business associate? Inside Indiana Business’ recent article, “Risky: Property Owned with a Non-Spouse,” says that you should think about the negatives, such as loss of control, unknown creditor issues and tax consequences.

Loss of Control. When you choose to co-own an asset with another person, you can enter into a legal ownership agreement known as “joint tenants with rights of survivorship” or “JTWROS.” When one of the owners dies, the surviving owner automatically becomes sole owner of the property. However, you give up some control of ownership, when you own property in this way. For example, you can’t direct your portion to go to a spouse or a child after your death in your will or other estate planning documents. OK, you can, but your co-owner’s ownership title takes precedence over your estate documents. As a result, she will become the sole owner. You can also lose some control over the property, if the non-spouse co-owner transfers her interest in the property to another individual without your consent. It’s also tough to remove a co-owner from the property title without his or her full cooperation.

Creditors. Another issue with jointly held property is that it’s subject to creditors’ claims against both owners. If your brother, as a co-owner of your cabin, has financial troubles and files for bankruptcy, his ownership in the cabin could possibly be claimed by a creditor. He could also be forced to sell it to pay off his debts. So, unless you can buy out his ownership in the cabin, you may now own the property with a stranger.

Potentially Higher Taxes. Adding a non-spouse as co-owner of an asset, allows for a simple property transfer at your passing. However, it could also mean both a gift tax to you and an increased capital gain tax for your heir. By adding a non-spouse to the property title, you’re making a gift to the new joint owner. Therefore, based on the current value of the property being gifted, you could be liable for gift tax. In addition, the heir of the property may have to pay increased capital gain taxes. Property transferred at death receives a step-up in basis. This means the heir’s cost basis is equal to the fair market value of the property at your death, instead of your cost basis (the amount you paid for the property). Receiving a step-up in basis reduces the heir’s capital gain on the appreciation of the property when it’s sold. However, if you add a co-owner, only your interest in the asset has the benefit of stepped-up basis at your death, not the entire property. When the property is sold, this may mean a higher capital gain tax.

JTWROS vs. Tenants in Common. When deciding to co-own an asset with another person, you can also enter into an ownership agreement known as “tenants in common.” Here’s a key difference: holding property JTWROS with another person means that when one owner dies, the other owner receives the property outright and automatically. When owning property as tenants in common with another person, when one owner dies, the owner’s heirs receive his share in the property. A co-owner can again transfer his interest in the property without approval as the other co-owner. This loss of control may place you in a difficult position.

When considering property ownership with another party, look at the pros and cons of both JTWROS and tenants in common. The cons usually outweigh the pros. However, if owning property with a non-spouse is what you want, discuss this with a qualified estate planning attorney.

Reference: Inside Indiana Business (December 1, 2019) “Risky: Property Owned with a Non-Spouse”