retirement

4 estate planning tips for unmarried couples

Move carefully when moving in together
Move carefully when moving in together

More Americans are saying, "Let's live together" instead of, "I do," as evidenced by Census data showing that the number of live-in couples in the U.S. rose 25 percent from 2000 to 2010.

When life partners don't tie the knot, they don't enjoy the financial advantages that come with marriage. Estate planning issues for unmarried couples -- straight or gay -- are less clear than for married people, and the fuzziness can sometimes have devastating consequences.

For example, partners living together could inadvertently disinherit one another, says Cathy Pareto, founder of Cathy Pareto and Associates, an independent wealth management firm based in Coral Gables, Fla. And it can get even worse: A person could be shut out of a partner's end-of-life decisions or kicked out of the house they shared but didn't own together, says Pareto.

While laws tend to favor married duos, here are steps a happily unmarried couple can take for financial peace of mind.

Draw up wills and be your beneficiaries
Draw up wills and be your beneficiaries

When you and your significant other are living together outside of marriage, you have to be vigilant to make sure assets will pass to the other when one of you dies.

One way to do this is to name each other as beneficiaries on all pensions, retirement accounts and insurance policies, says Certified Estate Planner Jean Dorrell, president of Senior Financial Security Inc. in Summerfield, Fla.

However, she notes that some retirement and pension accounts have different rules about naming nonfamily beneficiaries, so check with your financial planner or attorney first.

Also, wills are vital. If you don't have one, your assets can pass, by default, to a parent, sibling or other blood family member -- not your partner, says Pareto.

It's important to have a will drawn up even if you've named your partner as your beneficiary, notes Steven J.J. Weisman, a practicing attorney who teaches a course on financial planning for nontraditional families at Bentley University in Waltham, Mass. "Beneficiary designations are important, but you can never be sure you are covering everything," he says.

Make sure your property is properly titled
Make sure your property is properly titled

"If you are living in a house your partner owns, and if that partner dies, the family can kick you out," says Dorrell. "Making sure a partner inherits the house can be difficult if it is not titled correctly."

If both partners have contributed equally to purchasing a house, it may be simplest to title it in both names and add a layer of protection through a "joint tenancy with right of survivorship." That document will keep the property out of the legal process called probate if one of you dies, says Weisman. But the designation can have tax implications, so check with your accountant.

If only one partner has put in all the money toward the house, put the other partner in the will, says Weisman. "You can always change the will if you split up." If you are concerned about family challenging your will, he suggests creating a "revocable living trust" which can help ward off challenges to the estate.

In some states, unmarried couples concerned about estate planning can create a "revocable transfer-on-death deed" (sometimes called an "enhanced life estate deed"), which designates a beneficiary to receive property, says Dorrell. "It is becoming a more common and inexpensive way to transfer real estate."

Consider the possibility of poor health
Consider the possibility of poor health

It can be particularly traumatic for live-in couples when one partner becomes incapacitated. "If you don't appoint your partner -- in writing -- someone in your family or the state can appoint someone else to make your health and financial decisions," says Dorrell.

To avoid this sad scenario, you need two separate documents: a durable power of attorney to designate your partner to manage your financial affairs; and an advance care directive so your significant other can manage your health care decisions, says Weisman.

"Without these, there could be a court battle with the family," he warns.

And without the documents, one partner can even be denied the right to see the other, adds Pareto. "It is utterly tragic and unfathomable, but it happens," she says.

In the absence of advance planning, the courts will typically look for a blood relative, or -- worse yet -- a court-appointed guardian. "Don't let a stranger dictate your affairs … because you failed to plan for your partner to handle things for you," says Pareto.

These are not one-size-fits-all documents, adds Weisman. "You should have an attorney do this. It is not a big-ticket item."

Plan in case your love isn't forever
Plan in case your love isn't forever

Married or unmarried, couples can decide to call it quits. But unmarried breakups can get even messier than divorce because marital or family law does not apply to unwed couples who split (except in some states that recognize common law marriage or domestic partners).

"Sometimes people live together to make it less complicated … but it can be more complicated upon separation," says Weisman.

So, for estate planning purposes, the best way for unmarried couples to protect themselves is to draw up a "living-together agreement," says Weisman. "The agreement should include who is responsible for what and who gets what in the event of a breakup," he says, adding that living-together agreements are legally enforceable in all states.

But a live-in couple must be careful not to include any reference to your sex life, adds Weisman. "If sex is mentioned or hinted at in any part of the agreement, it can be construed as a contract for prostitution and the whole thing can get thrown out in a court of law," he says.

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