Since unmarried couples lack the financial and legal benefits of their married counterparts, they may want to be vigilant in ensuring that proper documentation is in place to protect them, both legally and financially.
Some basic documents and tips for maximizing your wealth outside of marriage:
1) A Will and Living Trust. The marital deduction, allowing tax-free transfers of wealth to spouses, doesn’t apply to unmarried couples, so planning is essential. A will can ensure assets don’t automatically go to your surviving family members, which is what would happen if you were to pass away intestate. There is no way to get your assets to anyone other than next of kin unless you have a will.
To make your intent even more solid, consider getting a living trust. A living trust is harder to contest than a will, because typically once a will is signed, you never look at it again. A trust, on the other hand, requires some effort to transfer and re-title assets in the name of the trust, signifying deliberate intent. Even if you have a living trust, you need a will for certain assets that remain outside the trust and to name guardians for minor children. In both, the will and a trust, you can make your wishes clear about the distribution of assets after your death.
2) Power of Attorney. There are different types of designated authorities to consider when it comes to your financial life, depending on how much power you want your partner to have. A general power of attorney allows the person holding the power to handle all legal matters, including financial transactions, on behalf of the person who grants it. There can be a specified time limit or it can go into effect under specific circumstances. This is called a springing durable power of attorney.
A general power of attorney is written to allow the power-holder to act in any number of situations. A financial power of attorney limits the holder to financial transactions. This designation is not necessary if there is a general power of attorney in place. A power of attorney can be written as durable, meaning that its duration will be extended in the event you become incapacitated. If you think about it, that’s when you need it the most. If a general power of attorney is not written as durable, then the authority to act on behalf of the other ceases at the worst possible time and it is not recommended.
3) Health Care Proxy and Living Will. Just as with a financial or general power of attorney, one written to cover health care allows a specified person to make decisions regarding care on your behalf if you are unable to make them yourself. Sometimes this is referred to as a health care proxy. In addition, you may consider drafting a living will that directs medical professionals on any end-of-life treatment. In some states, both the health care power of attorney and living will are combined into one document called an advance health care directive.
Consider sharing these documents with loved ones so everyone who might be involved is aware of your wishes and the identity of your decision-maker. Documents vary by state, so be sure to follow the requirements where you live. Generally, they require witnesses, but not necessarily a notarized signature. We recommended keeping a copy of the document handy for emergencies.
4) Insurance Policies and Retirement Accounts. It’s all about the named beneficiaries with these documents, because the people you designate on the document will be the ones who receive the benefit, regardless of what your will or living trust states. Common assets with named beneficiaries include insurance policies and retirement accounts, including IRAs, 401-Ks and 403-Bs. Also, some people title bank accounts as “payable on death” or “transferable on death.” Those accounts will go directly to the designated person named on the account when you pass away.
Finally, don’t forget contingent beneficiaries. If the person you name as primary beneficiary dies before you and you have named a contingent beneficiary, the asset will pass to your estate and be distributed per the terms of the will. If there is no will, the assets will pass to the next of kin. Try to make sure the named beneficiaries are in line with your overall estate plan.
5) Application for Federal and State Benefits. Civil or common-law marriages are not recognized by the federal government for any benefits. State laws vary, so you may want to do research to find out if you’re able to file a joint state tax return. Laws for same-sex marriages also vary by state, with 37 states recognizing them. These rules are changing as we speak and that could change the picture for spousal benefits at the federal level. In the meantime, partners in a same-sex marriage interested in Social Security spousal benefits can go on the Social Security website, and click on the link for frequently asked questions for such unions. In each of the answers, it basically says they are processing some applications and if you feel you qualify, you should apply. But it doesn’t guarantee anything. Couples may automatically receive more benefits when they tie the knot.
The bottom line for unmarried couples is they can maximize their control by drafting or signing the proper documents to ensure each partner is protected—both legally and financially.
If you would like to learn how you can grow a substantial amount of cash that you have access to at any time without penalties, is unrelated to the stock market, and will generate income that is not included in your tax return, visit our website at https://infinitebankingsimplified.com/ or feel free to email us your questions at ContactUs@InfiniteBankingSimplified.com or call us toll-free at 1-844-443-8422.
Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners