There’s more than one way to tie the knot

DARCIE GUERIN

Are you and your partner in a committed relationship, but not legally married? Planning for the future may be even more important – and very likely more complex – than it is for your married counterparts.

Financial concerns are the same – fulfilling short-term financial obligations and achieving long-term goals, but you lack many of the legal protections and advantages that married couples enjoy. Because the issues you and your partner face are often complex, intertwined and – given today’s shifting legal environment – increasingly in a state of flux, getting professional advice is one of the best investments you can make.

Create a plan to address household expenses, property ownership, healthcare, taxes, investments, retirement planning and estate planning. The secret to a strong, healthy relationship is having the sometimes difficult conversations. Ask each other what will be managed together and deciding which areas you’d like to keep separate.

Home ownership for an unmarried couple would probably be held in joint ownership, with rights of survivorship or tenants in common. As joint tenants, when one partner dies, the surviving partner automatically becomes sole owner of the property. As a tenant in common, you can transfer your property interest via a will. If you die without a will, your assets may automatically be transferred to your nearest blood relative, regardless of your wishes.

What if the relationship ends? Have an attorney draw up an agreement to address how assets will be divided. What happens if one partner relies on the other for financial support? If you’ve helped pay the mortgage or made improvements on a home owned by your partner, you may have no legal claim to the property if you split up or if your partner were to die.

Do you have a will, and is it up to date? If not, have an attorney draft one for each of you. The expense of having this done by a professional will more than pay for itself if a third party decides to challenge your choices.

What about medical issues? If you want your partner to make critical decisions if you become ill, you’ll need a healthcare directive and a durable power of attorney for finances. Consider signing Health Insurance Portability and Accountability Act (HIPAA) releases to access the other’s medical information. Otherwise, doctors may ask family members to make medical decisions. A durable power of attorney (DPA) for healthcare (FPAHC) allows your partner to act on your behalf. Without this, you may not even be able to visit one another in the hospital or other facility.

Income tax status for unmarried couples filing head of household income tax status is the same as for married couples. Wages, salaries and other income are taxed to the person earning them. Tax liability resulting from property and investments is more difficult to determine. If there are active investments, like rental real estate or business interests, see a tax attorney to discuss forming a limited liability company (LLC) and combining it with revocable living trusts. An LLC can reduce potential liability and revocable living trusts help avoid probate and minimize estate tax. The LLC holds active investments, while the trusts hold non-active investment interests such as bank accounts, stocks and bonds. Proper titling of assets and living trusts help to avoid probate and may provide better protection than wills against challenges by family members.

Retirement planning for unmarried couples is more challenging, too. Consider designating your partner as beneficiary on your retirement plans, increase savings now to replace the spousal benefits your partner won’t receive from Social Security or perhaps use life insurance to help fund your partner’s retirement.

The estate tax exemption is $3.5 million and due to be abolished for one year in 2010. Current legislation calls for the federal estate tax exemption to decline to $1 million in 2011 (we’ll see). To minimize the impact of gift and estate taxes, you may wish to establish an irrevocable trust, holding permanent life insurance policies – typically whole or universal life policies – naming your partner as the beneficiary. This strategy eliminates the death benefit from the estate, reducing its value and taxes owed.

Assemble a team consisting of your attorney, accountant and financial advisor to comfortably work with you and your partner to review life insurance policies, trusts, retirement accounts, individual investment portfolios and other vehicles, to see if they’ll generate the income and liquidity you seek. Don’t overlook the impact of rising inflation, increasing healthcare costs and longer life spans.

Explicitly document in writing your intentions in a way that will stand up to possible legal challenges. If you have a well-crafted will in place, you can leave your property to anyone you choose, in whatever proportions you choose. With a durable power of attorney DPA for finances, you can appoint your partner, an institution, a third party or any combination of these three to act as your agent, with authority to make certain decisions for you. The DPA can take effect immediately or be triggered only if you become incapacitated. If you don’t have a DPA, someone will have to petition in court to be appointed. This can be an expensive, time-consuming and distressing process, especially if any conflicts exist between your partner and a family member.

Changes in tax and estate planning laws may occur at any time and could have a substantial impact on your situation. While I’m familiar with the tax and estate planning provisions of the issues discussed, I’m not qualified to give advice on tax or legal matters. Discuss any tax or legal matters with the appropriate professional.

It’s difficult to find the time and emotional energy for all of these issues. If ignored, they don’t go away and may become more difficult. That’s all the more reason to get started today.

Darcie Guerin, financial advisor and branch manager, Raymond James & Associates, Inc. 606 Bald Eagle Drive, Suite 401, Marco Island, FL 34145, provides this article. Gulfshore Life magazine named Guerin as one of the Best Personal Wealth Managers in the Southwest Florida area for 2009. If you have questions, e-mail her at Darcie.Guerin@RaymondJames.com or call 389-1041, toll free (866) 343-0882 or visit RaymondJames.com/Darcie. Past performance may not be indicative of future results.

© 2009 marconews.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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