Strategies for Financially Taking Care of a Non-Spouse Significant Other
Melissa A. Seamon, CFP®
Senior Financial Advisor
Currently, more than 18 million Americans have chosen to be in a long-term relationship outside matrimony. While it has become more common and accepted in society, unmarried couples face a broad range of challenges and complexities.
Most of the challenges are inherent in state and federal laws, which establish default rules for married couples. Marriage itself is bound by a legal contract, providing financial protections for spouses while living and for surviving spouses when their partners die without a will.
But unmarried couples are not subject to the same default rules as married couples, requiring them to take extra measures to ensure both partners are protected. Here are seven planning strategies for unmarried couples to maximize their financial protections.
1. Wills, Trusts, and Powers of Attorney
Basic estate planning for married couples is reasonably straightforward—the surviving spouse inherits even if there is no will. (But, Married People, you should still have a will!) That’s not the case for unmarried couples. Absent a will, the court can decide who inherits which typically entails the state’s laws of intestate succession. For example, in Michigan, intestate succession includes children first, then parents and siblings.
At a minimum, unmarried partners should have wills, which are legally binding in all states. Though they must be probated in the courts, a will’s directives are always honored unless they are challenged. A will is also essential for establishing guardianship for surviving minors should both partners die.
2. Living Trusts
You could take it a step further and establish a living trust, naming it as the beneficiary of your wills. The advantages of a living trust are as follows:
- It keeps the estate out of probate, saving time and expenses;
- It also allows the grantors to provide specific instructions on how assets are to be managed and distributed;
- A Living Trust is harder to fight in court than a will.
3. Medical Directives and Financial Power of Attorney
Unmarried partners also need to create a legal path for each other when one is no longer able to make decisions on their own. Generally, an unmarried partner may not have a say in the care and finances of their partner if they become incapacitated. That can be remedied with two essential legal documents: A health care directive and a financial power of attorney, giving each partner the legal authorization to make decisions on behalf of the other.
4. Retirement Planning
The most significant disadvantage for unmarried partners is they are not eligible for spousal Social Security benefits and, in most cases, pension benefits of a deceased partner. That is why partners must name each other as beneficiaries of their retirement accounts, including employer plans (401(k), 403(b), etc.) and individual accounts such as traditional and Roth IRAs. Retirement assets that pass via beneficiary designation also avoid probate.
5. Bank and Brokerage Accounts
If your bank and investment accounts are set up jointly with both names attached, you have nothing to worry about being able to access them if your partner dies. Otherwise, they will be included in the estate and probated.
For bank accounts under one name, you will need to add a transfer-on-death or payable-on-death designation.
6. Your House
To ensure the house passes to a surviving partner, both partners should be named on the deed as owners. You can split a mortgage, but unless both partners are named on the deed, the house becomes part of the probate estate.
A common ownership designation for non-married persons is to name both as joint owners “with rights of survivorship,” ensuring equal ownership while entitling the surviving partner to assume full ownership.
7. Life insurance
Life insurance is the ultimate catch-all to ensure your partner is financially protected. The amount of coverage for each partner should depend on their individual needs after their partner dies. For example, if one of the partners is the primary earner, the other partner should receive enough death proceeds to replace the lost income.
Next Steps
Unmarried couples deserve the same peace of mind as their married counterparts. It just requires more thoughtful planning. At Gardey Financial Advisors, we work with people to help them protect what they’ve built together. If you are in need of a financial ally, we encourage you to visit our site, learn more about our services, and see if we could be a good match. We best serve clients looking for exceptional client service, who value a long-term partnership, and have a minimum of $500,000 in investable assets.
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Resources:
https://www.cnbc.com/2022/12/13/how-to-create-a-financial-plan-as-an-unmarried-couple.html
https://www.pearsonbutler.com/blog/2022/august/estate-planning-tips-for-unmarried-couples/