Avoid the state default plan
In a way, everyone has an estate plan. If you have not created one, your state has a default plan for you. Your assets will probably go through a court process called intestate (without a will) probate. And your state’s default plan is probably not what you would have wanted. State laws vary, but generally, they direct assets to the closest family members. How a state determines who are the closest family members is often complicated for nonnuclear families. One thing is certain, though: a nonfamily member, such as an unmarried partner, will not receive any of your assets.
But do you really want to put your loved ones through probate?
A will is a legal document that lists your property (assets) and who should receive it after your death (heirs). If you have a will, the assets it controls will have to go through probate before they can be fully distributed to your heirs. During probate, your will becomes a searchable public record. Probate proceedings vary from state to state, but many people view the time, cost, loss of privacy, and loss of control that come with probate as unnecessary evils that should be avoided. The process also invites family members to contest the will. A nonfamily member, like an unmarried partner, may not receive the assets you leave to him or her in your will if there is a successful will contest.
One way to avoid probate
Even with a will in place, not all of your assets may go through probate. Assets with a valid beneficiary designation pass outside probate to the named beneficiaries, and property owned jointly with right of survivorship will automatically transfer to the survivor. But if your beneficiary or joint owner is incapacitated when you die, the court will get involved to protect that person’s interests. If your beneficiary or joint owner has died before or simultaneously with you, or the designation or title is otherwise invalid, those assets will have to go through probate and will be distributed according to your will or, if you do not have one, under the default state law.
Often, unmarried partners will put both names on a title (especially a home) to ensure the asset will pass to the surviving partner upon the death of the first. However, this can create problems:
Joint ownership and beneficiary designations can be effective tools to avoid probate but often cause unintended consequences—both for you and for your unmarried partner.
A better way to avoid probate
A far better way to avoid probate is to establish and fully fund a revocable living trust. A revocable living trust is a powerful estate planning tool that keeps you in the driver’s seat. You create a revocable living trust during your lifetime and specify how you want your assets handled during your lifetime and after your death. You name a trustee to oversee the revocable living trust. You can be your own trustee while you are alive. You also get to name your successor trustee—a person or a trust company you trust to continue to uphold your wishes after your death. You name your beneficiaries, who can receive distributions under the trust. Trusts are carefully structured to minimize tax exposure. While held in the trust, your assets are protected from both your and your beneficiaries’ creditors and predators.
With a revocable living trust, you can avoid the following pitfalls of wills, joint ownership, and beneficiary designations:
A revocable living trust gives you the maximum control over your assets and gives your unmarried partner the maximum protection after your death.
An estate plan gives you and your partner peace of mind
Unmarried partners do not have the same protections and benefits under the law that married partners do. An estate planning attorney who has experience working with unmarried partners can help you navigate the issues and make sure your postdeath plan will work the way you want it to work when it is needed.
Next time, we will look at special considerations for unmarried partners in planning for incapacity.