Phoenix Society member Karin Prangley, senior vice president at a private bank and trust company, offers planning advice for older couples.
When individuals become involved in committed relationships later in life—whether or not they wed—they should consider some important legal and financial questions to help protect both partners and their families.
1. QUESTIONS OLDER COUPLES SHOULD ASK EACH OTHER
One pressing question for an individual to ask is: What if something happens to me or my partner? More specifically, who will make legal and health care decisions for me if I am unable to make them for myself, and vice versa? If not my partner, then should my partner be consulted? In particular, unmarried partners who wish to make decisions for one another should name each other as agents in powers of attorney and/or directives to make this clear. If not so named, partners should know who the named agent is and discuss what role, if any, the other should play.
Another question to consider is what, financially, a partner’s death or disability will mean for the survivor. Will the couple leave their assets to one another upon death? How will the assets be divided between the surviving partner and any adult children from a prior relationship? If the couple lives in a home owned by one partner and that partner dies or is transferred to a nursing home, will the surviving partner have the right to purchase or rent the home?
2. CONSIDERATIONS BEFORE GETTING MARRIED
Most experts agree that a couple marrying later in life should consider a prenuptial agreement, especially if either partner has significant assets, an interest in a privately held business, or children from a prior relationship. A prenuptial agreement is a legal document that specifies how assets should be divided if the marriage fails or a spouse dies.
3. FOR COUPLES WHO CHOOSE NOT TO MARRY
First, it is important to work with an estate planning attorney to prepare a proper estate plan. While the law provides certain default benefits to married couples in the absence of a will, unmarried couples do not have survivor’s rights without a will (other than certain jointly owned property).
Careful estate planning can also save estate taxes, which may apply if a partner’s assets exceed the estate tax exemption amount ($5,450,000 in 2016). To reduce estate taxes, some strategies should be considered:
A credit shelter trust. Inheritance for a surviving partner can be left in a trust for the survivor’s benefit that, if properly structured, will prevent a portion of the predeceased partner’s assets from being taxed when the surviving partner dies. Upon the survivor’s death, any remaining trust assets can pass to desired beneficiaries.
An irrevocable trust for insurance. If insurance is owned by a properly structured and administered irrevocable trust, proceeds will not be subject to estate tax when the insured dies. The trust can name the surviving partner as the outright beneficiary, or the insurance proceeds can be held in trust for that partner’s benefit.
A charitable remainder trust. If the couple is charitably inclined, they may create a charitable trust in their estate plan. When one partner dies, assets pass to a trust that requires annual payments to the surviving partner. Upon the death of the surviving partner, any remaining trust assets would pass to charity.
Tip: Don’t have an estate plan? Use our free estate planning organizer to get started.