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| Best Practices: Family |
Unrecognized Unions
Jill Duman
03/01/2008
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Unmarried partners may name each other as beneficiaries for
retirement plans, although the survivor cannot roll over the benefits into his
or her own plan the way a spouse can. Many partners also rely on life insurance
to provide for each other as well as their family members. Russell P. Love, a
partner in the Atlanta offices of McKenna Long & Aldrich, describes naming
one another as life insurance beneficiaries—an all-around simple way of
transferring assets—as "the great equalizer."
TOP VIEW
Unmarried partners who live together must draft their estate plans
carefully if they wish to leave their wealth and property to each other without
creating a huge estate tax burden. Breakups can pose an even greater threat to
individuals’ and families’ wealth in states that view such unions as common-law
marriage. Advisors urge couples and families to tackle these thorny planning issues before relationships end. |
Trusts provide yet another planning alternative. Bypass and
life estate trusts move property into an irrevocable trust upon the first
partner’s death, and the survivor lives off the property’s income. Under this
arrangement, each partner’s personal $2 million estate tax limit applies, and
the property can then go to another beneficiary—the first partner’s children,
for instance—when the companion dies. However, these agreements can cause
discord, because the family members who stand to ultimately inherit from their
parents and grandparents may object when someone from outside of the family
benefits from its wealth.
"Children get cranky if they can’t get their trust," observes
Diane Kelly, a CPA and certified management accountant in Carmel, Calif.
Animosity may build, especially if the deceased individual
tries to leave ownership in a family business to an unmarried companion. "Joe’s
family is not going to be inclined to let Mary take Joe’s interest in the
business—that’s just not going to happen," Padilla says. "They’re also not going
to be too happy to give her money in order to purchase his interest to keep the
business in the family."
Families can avoid potential friction by talking about estate
plans, says Debra Neiman, a Massachusetts-based financial advisor and a coauthor
of Money Without Matrimony: The
Unmarried Couple’s Guide to Financial Security. "Communication is your first line of defense," she says.
Marking Boundaries
Real estate typically represents the largest and often most
complex asset cohabitants share. Wealth advisors recommend discussing details
such as what names appear on the title, who owns the property, who bears
responsibility for property liens, and what happens if the relationship
dissolves or one partner dies. For couples purchasing a home together and
intending that the survivor own the property after the first partner dies, both
names should appear on the title as joint tenants with the right of
survivorship.
Palimony cases may occur infrequently, but when they arise, they pose a huge burden. |
"If you don’t have those magic words," Padilla says, "it is
deemed to be a tenancy in common, and half of that asset will pass through the
estate of the deceased." Lacking a proper plan, the survivor could own a home
with any other person who inherits major assets from the deceased partner.
Property ownership that is unclear provokes some of the more
fractious breakups. "The call I get several times a week is ‘My girlfriend and I
bought this house’ or ‘My boyfriend and I bought this house,’ " says Jared
Laskin, an attorney in Southern California who specializes in cohabitation and
palimony issues. Frequently the partner with poor credit is not listed on the
title, yet helped pay the mortgage. Following a split-up, that person may not
have a legal claim to the home.
"Never, never put money or effort into a house that is not in
your name, unless you have some written agreement," Laskin says. "People just go
in blindly. Even if you trust your partner—and everyone trusts their partner
until the relationship goes sour—he could get hit by a bus tomorrow, and if
there’s no will, you have no interest in the house."
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