Paul O. Dillon, Attorney at Law

Why Unmarried Couples Need Protection of an Estate Plan

Couples decline to marry for a variety of reasons. Some are pragmatic, such as protecting health insurance eligibility. Taxes are another reason, as is qualifying for government benefits, like Medicaid or needs-based student financial aid. However, a recent article from the Journal of Accountancy, “Forgoing marriage? Estate planning for unmarried couples,” explains why unmarried couples must protect themselves from life's unexpected but inevitable events.

There is an old saying that marriage is the cheapest estate plan available, and in part, this is true. Here’s what unmarried couples can do to protect themselves.

How are assets titled? Having the home titled as a joint tenancy/ownership with the right of survivorship protects both partners. If one partner dies, full ownership automatically switches to the other partner, with no need for court documents or other paperwork.

Beneficiary designations. Each partner should review the beneficiary designations on all applicable financial accounts and products. This includes life insurance, pensions, retirement accounts, and, if possible, bank accounts. If the couple doesn’t want to make each other joint owners of the bank accounts, see if they can be added as beneficiaries.

Cohabitation agreement. This document clarifies everything from financial responsibilities during and after the relationship, from who will care for a shared pet to the distribution of jointly owned property if there is a breakup. Think of it as a prenup for unmarried people.

Power of Attorney. This allows the partners to step in and manage each other's affairs if one should become incapacitated. It’s also effective if one person travels and needs the other partner to manage daily financial matters.

Advance Care Directive. This document states a person’s wishes about medical care if they cannot communicate on their own. It should include a Health Care Power of Attorney, allowing the partners to make medical decisions for each other. Without it, adult children, siblings, or parents will be the only ones who can make these decisions. This will also permit the partners to access personal health information for each other during an illness or an emergency.

Last Will and Testament. Distribution of property or assets not owned jointly takes place through the will. The will is also used to name an executor in charge of the estate and carrying out the instructions in the will, as well as a guardian for minor children. If there is no will, an unmarried surviving partner will have no control over any property or assets. Without a will, the laws of intestacy take control, and usually surviving children, parents, siblings and even distant cousins who are related by blood come before the unmarried partner.

Trusts. If the couple wishes to keep their possessions and distribute them privately, a trust can be created to own assets, with the trustee being one partner and the successor trustee being the other. Couples with minor children, shared real estate investments, or assets in more than one state may find using trusts more efficient than passing assets through a will. Assets in a trust are not subject to any instructions in a will, do not become public and do not go through probate.

A consultation with an estate planning attorney can provide unmarried couples with a clear path to protect each other for the rest of their lives. This is the peace of mind provided by an estate plan.

Reference: Journal of Accountancy (April 30, 2024) “Forgoing marriage? Estate planning for unmarried couples”

How to Make 2024 the Best for Retirement Finances

We all know what happens with New Year’s Resolutions—they’re mostly gone by February. A recent article from The Street, “9 Ways to Prioritize Your Financial Well-Being This Year,” explains how a proactive mindset can help you integrate positive management into your everyday life in 2024.

First, get organized! A cluttered environment can lead to a cluttered state of mind, increasing stress and reducing productivity. When was the last time you organized your finances? Preparing for taxes is a good time to take a day to go through old records, identify and gather what’s missing, update information, end unused subscriptions, set a budget, create your income tax folder and create a mindful bill-paying system.

Determine your financial goals for 2024 and beyond. If you’ve recently experienced a significant life event, like a divorce or marriage, or welcomed a new child or grandchild, now is the time to incorporate new goals, eliminate old goals and focus on the steps you need to achieve your new goals.

Have a values-based conversation with your spouse or partner. What is essential to both of you and how might you accomplish these goals? If you are single, make an appointment with your financial advisor to discuss your goals and what you can do to make them a reality.

Do you know what your net worth is? This is often used as a benchmark to understand your progress towards your goals. You should include investments, savings, equity in your home and other assets. Then assess your liabilities: mortgage, credit card debt, auto loans, personal loans, etc. Doing this every year will help you understand if you’re making good progress or may serve as a wake-up call.

Do you have an estate plan, or is your estate plan more than three to five years old? This is the greatest gift you can give your family. It includes how to settle your estate once you’re gone and how and who to manage your affairs while you’re living if you become incapacitated. An experienced estate planning attorney can create a plan aligned with your state’s law, so you don’t risk creating an invalid will, which will cause many challenges for loved ones.

Prepare digital assets. If you don’t have a list of all online accounts, including usernames, passwords, PINS and two-factor authentication information, start by taking inventory and documenting your information. Make sure your executor has access to this information.

Prepare a financial “go” bag. The news is filled with natural disasters. You won’t get a printed invitation if you need to evacuate in an emergency. Have copies of important documents, including IDs, insurance cards, healthcare directives, birth certificates and marriage certificates, ready to take with you at a moment’s notice. Include information about your prescriptions and other medical information.

It's always good to form good habits and tracking them keeps your activities and goals top of mind. Use a spreadsheet, calendar, or journal to hold yourself accountable and give yourself a feeling of satisfaction every day.

Finally, a values-based decision-making approach can help you reach your goals. An example is whether you want to make an extra mortgage payment or invest the money in your child’s 529 account. By identifying core values before setting goals, you can use your values to help prioritize what matters to you, aligning goals with values and actions.

Reference: The Street (Jan. 22, 2024) “9 Ways to Prioritize Your Financial Well-Being This Year”

Does Marriage have an Impact on a Will?

It is very difficult to challenge a marriage once it has occurred, since the capacity needed to marry is relatively low. Even a person who is under conservatorship because they are severely incapacitated may marry, unless there is a court order stating otherwise, says the article “Estate Planning: On Being Married, estate planning and administration” from Lake Country News. This unfortunate fact allows scammers to woo and wed their victims.

What about individuals who think they are married when they are not? A “putative” spouse is someone who genuinely believed they were married, although the marriage is invalid, void, or voidable because of a legal defect. An example of a legal defect is bigamy, if the person is already married when they marry another person.

Once a couple is married, they owe each other a duty to treat each other fairly. In certain states, they are prohibited from taking unfair advantage of each other. Depending on the state of residence, property is also owned in different ways. In a community property state, such as California, marital earnings and anything acquired while married is presumed to be community property.

In a community property state, debts incurred before or during the marriage are also shared. In a number of states, marriage is sufficient reason for a creditor to come after the assets of a spouse, if they married someone with pre-marital debts.

There are exceptions. If a married person puts their earnings during marriage into a separate bank account their spouse is not able to access, then those deposited earnings are not available for debtor spouse’s debts incurred before the marriage took place.

If a married person dies without a will, also known as “intestate,” the surviving spouse is the next of kin.  In most cases, they will inherit the assets of the decedent. If the decedent had children from a prior marriage, they may end up with nothing.

These are all reasons why couples should have frank discussions about finances, including assets and debts, before marrying. Coming into the marriage with debt may not be a problem for some people, but they should be advised beforehand.

A pre-nuptial agreement can state the terms of the couple’s financial health as individuals and declare their intentions. An experienced estate planning attorney can create a pre-nuptial to align with the couple’s estate plan, so the estate plan and the pre-nuptial work together.

Marriage brings rights and responsibilities which impact life and death for a couple. Starting a marriage based on full disclosure and proper planning clears the way for a focus on togetherness, and not solely the business side of marriage.

Reference: Lake Country News (Feb. 12, 2022) “Estate Planning: On Being Married, estate planning and administration”

Does Anyone Know Where Your Money Is?

A woman’s brother is in a coma. No one in the family, even the man’s wife, knows anything about his savings, investments, debts, or any financial matters. The family doesn’t know who his financial advisor is, if he has a will or how much money is available to pay bills, which are piling up rapidly. When they did locate bank accounts, the family had to work with three different banks to get access to the money. At least there was a Power of Attorney in place, so bills could be paid. However, what else did he own?

The family’s story, as related in the article “Someone Needs to Know Where Your Money Is” from Kiplinger, is not unusual. An estate plan with preparations for incapacity as well as death, shared with his wife or a family member, would have prevented many of these problems. What can you do if faced with this same scenario?

Finding the most recent tax return will yield a lot of information. This document will have the name of the person who prepared the return, if the person used a CPA. The tax return will also document income and possibly list some assets. Information like earned interest, dividends, pension income and withdrawals from retirement accounts will be on the tax return. If you know the name of the person’s employer, call the human resources department, since they may be aware of a life insurance benefit or a 401(k) account.

The person in this example was admitted to the hospital and their health deteriorated so rapidly that there was no time to make any proper arrangements. We never know what the future will bring. Having an estate plan and gathering information on finances and assets—and sharing this information with loved ones—should be done by everyone.

Here are the documents most people need in case of incapacity:

• Will, Financial Power of Attorney and Trust Documents, if any exist
• Bank, Investment and Social Security statements
• Information for all online assets, including financial assets, websites, business accounts and cryptocurrency
• List of all Retirement Accounts, annuities and life insurance policies
• Cost basis of all investment in taxable brokerage accounts or stocks
• A list of any assets of value, including real estate and automobiles
• A list of debts, and
• Most recent tax returns.

Schedule B on a tax return can reveal some surprises for family members. If there are no paper records or log-in information to financial websites, ask the tax preparer for a copy of the 1099 form for each asset. Once the list is complete, put together the information, along with all insurance company information and the tax return, into a large envelope to be reviewed once a year.

Some estate planning attorneys keep original wills for clients, but not all do. Contact your estate planning attorney to find out what would happen if you became incapacitated and be sure to have the necessary documents created or updated, including a will, financial power of attorney, health care power of attorney and any trust documents. A copy of your Social Security card, birth and marriage certificates and your estate planning documents can go into a big envelope marked “Legal Documents” and placed in a secure location, also to be reviewed annually.

Tell your executor and trusted family members where these documents are, so they can be accessed when needed. They will be able to act on your behalf in the event of incapacity and you will have spared them unnecessary stress and expenses.

Reference: Kiplinger (Nov. 1, 2021) “Someone Needs to Know Where Your Money Is”

Planning Future for Nontraditional Families

Today’s non-traditional family are not just LGBTQ couples, but families undergoing gray divorces, blended families, stepchildren, multinational families and children born through assisted reproductive technologies, referred to as ART, in a recent article titled “How to Plan for LGBTQ, Blended Families, Cohabitation, Other Nontraditional Families” from Financial Advisor.

The key is having an estate plan prepared that is flexible so that last wills, trusts, and all documents reflect the non-traditional family very clearly and do not leave room for courts to make decisions. Here are a few new elements to consider:

Gendered pronouns and definitions. Ideally, your estate documents should use specific names of individuals, not pronouns. We live in a fluid society and using pronouns could lead to unnecessary complications.

Recognize ART and its implications. If there are children conceived by ART, they need to be explicitly included as children of the family. DNA testing can result in a child inheriting assets from a parent they never knew. It may be wise to exclude biological children, parents or siblings who do not have a relationship with the family.

Trust Protector/Trust Decanting. By including provisions that permit trusts to be decanted, that is, transferred from one trust to another, your estate planning attorney will create flexibility to allow a trust protector (a non-fiduciary appointment of a third party) to make changes. The selection of the trust protector is particularly important, as they could have a large impact on the overall plan.

Marriage, non-marital relationships, divorce, remarriage. An estate plan needs to prepare for future changes with precision and flexibility. Protecting the family, its privacy and dignity can be done by limiting the information in the last will, which becomes a public document. While we can’t know what the future holds, we can plan for change.

Prenuptial agreements. State laws vary on what is acceptable and procedurally necessary for a prenup to be enforceable. Typically, the agreement must be voluntary and include full disclosure of both parties’ financial situation. In some states, post-nuptials can be prepared, if the parties can’t agree on the document before they are legally wed.

Divorce creates special estate planning issues. Beneficiary designations need to be changed for life insurance, IRAs and other non-probate assets. Take affirmative steps to ensure that ex-spouses, or soon-to-be exes are removed as beneficiaries on all accounts, including pensions and insurance plans subject to ERISA.

Cohabitating couples. Marital gifts are tax free, but that is not the case for people living together. Estate planning and tax planning needs to be done, so the surviving partner is taken care of. This may include the creation of a cohabitation agreement, similar to a prenuptial agreement.

Planning for sickness and death. Explicitly stating wishes for end-of-life medical treatments, including feeding tubes, respirators, heart machines, etc., is step one in having an Advance Medical Directive created. Step two is deciding who is empowered to make those decisions. Someone who is unmarried but has a partner or a second spouse needs to be authorized. Note that when an individual is hospitalized, stepparents may attempt to deny access to spouses’ children, or children may block access to a stepparent. There should also be a Do Not Resuscitate (DNR) or Physicians Orders for Life-Sustaining Treatment (POLST) in place with the person’s wishes.

Non-traditional families of all types need to protect the family with estate planning and documentation. Issues about protecting children, making health care decisions for a critically ill partner and control of assets must be addressed in a way that respects the individuals and their families while working within the law.

Reference: Financial Advisor (Feb. 2, 2021) “How to Plan for LGBTQ, Blended Families, Cohabitation, Other Nontraditional Families”

How Will Marriage Impact My Savings for Retirement?

New research from Boston College’s Center for Retirement Research has analyzed individuals’ contributions to a 401(k) plan, before and after marriage.

“Millennials marry later than previous generations. Since marriage is a major life milestone that often marks a line between youth and adulthood, a logical question is how this delay affects retirement saving,” the report states.

Think Advisor says in its April article, “Do People Save More in Their 401(k)s After They Marry?” that at age 30, only 41% of millennials were married, compared with 59% for the late baby boomers.

The report looked at data from the Survey of Income and Program Participation linked to W-2 records on defined contribution plan deferrals, to determine the extent to which marriage affects retirement savings.

The results of the analysis show that people increase both their participation in and their contributions to 401(k) plans after marriage.

In terms of participation, men respond a bit more after marriage than women. The research shows that men have lower participation rates than women before marriage, but they wind up at the same level once married.

After marriage, women increase their contribution rate by an average of 0.8%, compared to only 0.3% for men, according to the research.

Following these results, the research then looks at what this means, if the trend toward later marriage continues. To do this, the research looks at how much retirement wealth accrued in 401(k) plans by age 65 would have been impacted, if men and women married later than they do now.

The analysis assumes a five-year delay in marriage, which is based on the approximate increase that occurred between baby boomers and millennials.

The analysis finds that the effect of delay, while statistically significant in the regression, is small—a 3.1% decline in accumulated assets for men and a 3.4% decline for women.

“While the delay in marriage may be problematic for some forms of savings—delaying homeownership for example—it seems unlikely to make a large dent in retirement savings,” the report states.

Reference: Think Advisor (April 23, 2019) “Do People Save More in Their 401(k)s After They Marry?”