More and more people in the United States are unmarried. With so many single adults content to stay single, planning for unmarried individuals becomes very important, especially since the estate and gift tax advantages available to married citizens and residents of the United States are not available to single people. Therefore, failing to have basic planning documents can cause unintended results and unnecessary taxes.
The Basics – Necessary Documents
If you are unmarried, have you considered who should handle your affairs if you were unable to do so? Most states have laws that force an answer to that and other such questions. To avoid having the default rule created by your state legislature apply to your circumstances, having the right documents in place can enable you to choose the person who will have authority to handle your affairs if you cannot.
States have enacted laws that allow you to create a document in which you can name one or more agents to communicate with your healthcare providers. These documents have various names, such as “healthcare power of attorney,” “healthcare proxy” and “healthcare declaration” (for ease of reference, such documents are referred to as healthcare documents). Whatever its name, a healthcare document allows you to indicate your preferences and to name a person (an agent) to communicate with others regarding your medical care.
Failing to name such a person in your healthcare document can cause chaos, or at least confusion. Your healthcare providers may turn to your “next of kin” for advice, perhaps a parent or a child, who may not know your wishes, or might impose their own. If you are cohabiting but unmarried, your cohabitant is not legally part of your family. As your cohabitant is not among your next of kin, your cohabitant may be excluded from discussions about your healthcare.
To determine that the person you want managing your healthcare is able to do so, you must appoint that person as your agent in your healthcare document.
As with healthcare decision-making, failing to clearly state and to designate someone to communicate your end-of-life decisions can lead not only to chaos and confusion, but also to heartbreak. States have enacted laws that allow you to create a document in which you can state your decisions regarding end-of-life and can name one or more agents to communicate those decisions to your healthcare providers and others. Although these documents have many names, for ease of reference they are referred to as a living will.
Without a living will, non-family members, such as a long-term cohabitant, can be excluded under state law from the process regarding end-of-life decisions.
Also, without a clear statement of your intent, it is possible that your family may be divided over decisions regarding your end-of-life care, causing an irreparable rift over what is inevitably a very difficult and often heart-wrenching decision.
As with a healthcare document, clearly state your desires with respect to end-of-life care and appoint the appropriate people in order for those wishes to be followed.
Durable Power of Attorney (Financial)
Imagine what would happen if you were unable to manage your financial affairs. If you do not have a durable power of attorney, then your family may need to seek a court-appointed guardian to manage your assets.
If you ever are incapacitated or simply unavailable, even for a brief period of time, your agent appointed under a durable financial power of attorney can manage your financial affairs while you are unable to do so.
A durable power of attorney can be useful to allow your bills to be paid with your available resources during a challenging time.
As with any position of trust, the person you choose will depend upon your circumstances. Choose your agent carefully, as that person can do with your assets just about anything you could do with them, perhaps even give them away.
Another way to have consistent management of your investible and other assets would be to fund a revocable trust during your lifetime. As the name implies, this is a trust that you can revoke or amend during your lifetime. You would be the beneficiary of the trust. Typically, you would also be the trustee. Your investment assets would be held in the trust (the trust could hold other assets too). If you became incapacitated or died, your successor trustee would immediately become the trustee and would continue to manage the property in the trust without interruption. As described below, the trust would also dispose of your assets following your death.
Disposing of Property at Death
Everyone dies. Following your death, your estate must be administered. That is, someone must gather your assets, pay your outstanding debts, pay your final income taxes and the taxes associated with transferring your assets and finally distribute your remaining property to your beneficiaries.
A will, or a will in combination with a revocable trust, would dispose of your property following your death. Such a document (or documents) would also appoint one or more people or entities to carry out your directions, including the allocation of taxes among your beneficiaries. If you fail to make a will, state law will dispose of your property, and you may not desire that result.
Your will, or will and revocable trust, can create trusts to hold property for persons not able to manage it, such as your children. You would name the trustee of the trust who would manage the property in the trust for its beneficiaries until directed by the trust’s terms to distribute the property. In many states, trusts never have to distribute their assets. Of course, by writing the trust, you make the rules with respect to the management and disposition of that property.
Also, your will can nominate guardians for your minor children. Although a surviving parent has first right to be guardian, not all surviving parents are qualified to be guardians. Although any guardian nomination must be approved by the appropriate court, by naming a guardian you are letting the court know your preferences with respect to who should care for your children following your death.
Not all property passes by will. Some assets, such as retirement plans, individual retirement accounts and life insurance, pass pursuant to beneficiary designation. Be sure your beneficiary designations are aligned with your estate plan. Also, don’t forget to complete the beneficiary designations for benefits provided by your employer.
For unmarried individuals, owning property together can be challenging. Failing to plan for that property can have dire consequences. How you own your property makes a difference, both while you are alive and following your death. Transferring property to someone to whom you are not married can also cause tax consequences.
Before acquiring property, adding someone to a deed or bank account or transferring property, be sure to seek legal assistance so as to understand your rights before and after the transfer and if the transfer will cause a tax.
Other Family Matters
Often, unmarried people living with one another are also living with children. Consider the following:
- Be sure someone is able to care for your children if you are temporarily unable to do so. Many states allow you to name a stand-by guardian for your minor children.
- Remember, you are obligated to support your children. If you are a step-parent, you may be obligated to support your step-children to prevent them from needing public assistance.
- If you are living with step-children, the end of your relationship may cause you to lose visitation rights. Be sure you understand your rights and protect them appropriately.
- Not all states allow an unmarried cohabitant to seek financial support from the other cohabitant after a breakup. Consider defining your rights in a cohabitation agreement, particularly if the relationship will hinder your earning capacity or cause you to make financial sacrifices.
Understand Your Relationship and Its Consequences
Unmarried individuals should plan for life just like anyone else. It is important to be aware of your state’s default rules with respect to healthcare, property ownership and division and distribution of property upon death. You should consult with legal, tax and financial advisors who can help you navigate life’s many relationships.
For more information, please contact your PNC Private Bank advisor.