The Importance of Estate Planning for Unmarried Cohabitating Couples
Estate planning is a crucial aspect of ensuring that an individual's assets are distributed according to their wishes. While estate planning is typically associated with married couples, it is just as important for unmarried cohabitating couples to consider. Unfortunately, unmarried couples do not have the same legal and tax benefits as married couples, which presents unique challenges when it comes to estate planning.
One important consideration for unmarried cohabitating couples is the legal status of their relationship. Unlike married couples, unmarried couples do not enjoy the legal protections that come with marriage. Without a marriage certificate, unmarried couples may face difficulty in accessing their partner's medical records or making medical decisions on their behalf. In addition, unmarried couples may encounter obstacles when it comes to inheritance. In California, intestacy laws dictate that assets are automatically passed to the decedent's closest relatives, rather than their partner.
Furthermore, unmarried cohabitating couples must also consider the tax implications of their estate planning. Under current California law, married couples can transfer unlimited assets to their spouse upon death without incurring estate taxes. However, unmarried couples are subject to estate taxes on any assets over the individual exemption limit. Under the Tax Cuts and Jobs Act of 2017, the estate and gift tax exemptions were raised significantly, but only temporarily. This means that the current higher exemption will "sunset" on December 31, 2025, after which the exemption will revert to the lower exemption amount of 5 million adjusted for inflation. As such, any assets that pass to a partner over that reduced exemption amount will be subject to a 40% estate tax.
To avoid these tax implications, unmarried couples may choose to utilize legal strategies such as gifting, trusts, or joint ownership. By transferring assets to each other during their lifetimes, unmarried couples can reduce the total value of their estate and therefore lower their estate tax burden.
Another important aspect of estate planning for unmarried cohabitating couples is establishing powers of attorney. Without marriage, unmarried partners do not automatically have the legal authority to make medical or financial decisions on behalf of their partner. To ensure that their wishes are carried out, each partner should designate a durable power of attorney for healthcare and financial matters. This will give the designated individual the legal authority to make important decisions if their partner becomes incapacitated.
In conclusion, unmarried cohabitating couples face unique challenges when it comes to estate planning. Without the legal and tax benefits of marriage, these couples must take extra care to ensure that their assets are distributed according to their wishes. By utilizing legal strategies such as gifting, trusts, or joint ownership, and establishing powers of attorney, unmarried couples can protect themselves and their loved ones in the event of incapacity or death.