Life can be an unpredictable beast. Should the unspeakable happen to you or your spouse, the last thing either of you would want for the other to inherit is a legacy of financial worry. That’s why estate planning is so essential in life-long partnerships like yours, no matter how big or small your ‘estate’ might be.
What is estate planning?
This is going to be a bit of a downer. Estate planning is how you manage, distribute and preserve your assets after you die.
Nice. Now why would I want to think about that?
Because now that you’re paired up in a marriage or domestic partnership, protecting your significant other in the event of your untimely end is the decent thing to do.
But I don’t have an estate...
Look, the word ‘estate’ is a bit of a misnomer here. Perhaps you only have a car. Maybe you have a savings account, a 401(k), a condo, a kick-butt vinyl collection. The point is: you have possessions that mean something to you. Don’t you want to pass them on to the person who means the most to you?
Okay, how do I plan for this worst-scenario-ever?
It could be as simple as writing a will. Who gets what should you…you know. Or it might be more complicated, especially if you and your partner purchase property together or share multiple assets. Let’s break it down into chewable pieces.
Small estates, as in a love nest:
For those of you with a whole lot of love, but few assets you’ll need the basics, namely:
- A durable power of attorney (DPOA): A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments and file taxes.
- An advanced medical directive, such as (1) a living will, (2) a health-care proxy, and (3) a Do Not Resuscitate order. A medical directive lets others know what medical treatment you would want, and allows someone to make medical decisions for you, in the event you can't express your wishes yourself. Advanced medical directives generally vary by state, so make sure your documents comply with the appropriate laws.
At the very least, you’ll need to have a will. Without one, state law dictates that only your closest relatives will inherit your property. Great, if you’re married. If not, your partner may get nothing.
If the two of you share property, like a house or car, make sure that you’re both listed as joint tenants with rights of survivorship. That way, should one of you – you know – that jointly held property will ‘pass on’ to the surviving partner.
Complicated Marital Assets:
To avoid tax entanglements, you could create a credit shelter trust to protect your assets from creditors in the event of your demise.
Or ensure that your assets reach your intended recipient via portability rules enacted in the American Tax Relief Act of 2012. That means the executor of a deceased spouse’s estate can transfer any unused estate tax applicable exclusion amount to his/her widow without incurring a penalty.
You should also look into life insurance. Your surviving spouse may not be able to support him or herself without you and need to replace your earnings.
Not married, but still complicated:
According to the U.S. Census Bureau, more than 7.7 million unmarried partners live in the same household. Without careful estate planning, half of those people could end up getting the shaft in the event of death or permanent disability.
So this doesn’t happen to your ever after:
- Write a will or create a trust to protect your surviving partner
- Take care how you title your assets: instead title it in both names as joint tenants with rights of survivorship
- Create a life estate for him or her so that s/he can remain in the home for life while naming other beneficiaries to receive title to the property at the time of their death
- Always make sure that your beneficiary designations on your IRAs, life insurance policies, annuities, and 401(k) accounts are current and comply with your wishes
You see? That wasn’t so bad. Estate planning is a process that runs the gamut from enacting a simple will to creating complicated trusts and tax shelters. Whether your estate is big or small, wasting even a single asset could cause your loved one to suffer financially when he or she doesn’t have to.
So, come on…who else is going to wear the shining armor?