When it comes to the intersection of estate planning and romantic relationships, the wealth management industry logically focuses on married couples. That makes sense because marriage is a contract and legal one at that.
Likewise, estate planning features plenty of legal elements such as documents, but that doesn’t mean married folks have a monopoly on estate planning. After all, widowed are essentially single. Additionally, some clients may have simply opted to never get married, but they also may have accumulated significant wealth over their lives. Plenty of people in that category are also aunts and uncles or simply want leave a legacy, confirming they’re ripe for estate planning services, too.
The other client category that has estate planning demands is unmarried couples. In fact, this group is a potentially untapped goldmine for holistic practices because the unfortunate reality is that in estate planning terms, it’s better to be married than to not tie the knot.
It boils down to legalities. Broadly speaking, it doesn’t matter in what state a client resides, the likelihood is that the laws relevant to estate planning feature verbiage pertinent to marriage and spouses. Likewise, those laws feature little, if anything, about unmarried couples. That increases the need for those couples to work with advisors. Speaking of advisors…
Unmarried Couples Need Advisors
While marriage remains the dominant form of cohabitation and legally recognized relationship, the number of people living with a partner though not married has increased significantly this century. In 2003, that percentage was 4. 3%, but it hit 7. 7% in 2023, according to the Census Bureau.
Knowing that, a case can be made that estate planning laws not explicitly addressing unmarried couples are antiquated. They probably are, but until politicians make the necessary changes, folks that aren’t married but are in committed relationships should lean on their advisors for estate planning purposes. In simple terms, marriage doesn’t create the need for services addressing medical issues, shared assets or Social Security. It merely makes related planning easier in the eyes of the law.
Fortunately, there are legal workarounds advisors can highlight to clients that are unmarried couples. Take the case of shared assets such as real estate. For the purposes of avoiding thorny probate battles, estate plans need to make clear who is getting what asset or house in the event of one member of the couple dying before the other. That’s a foundational step and even when implemented, there are some tax consequences to consider.
“When you add a nonspouse partner to the title of an existing asset, you're effectively passing on the original cost basis to that person, which could result in a large capital gains tax bill for the surviving partner should they later sell,” notes Joseph Reyes, a senior financial planner at Charles Schwab.
Medical, Social Security Issues
Due to the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule, doctors and nurses are limited regarding how much information they can share about a patient, even to a non-married partner of many years or decades.
The workaround there is for both members of the unmarried couple to form durable medical power of attorney. Legally speaking, that’s enough for one member of the couple to make potentially life-changing decisions on their significant other’s behalf and it’s certainly enough to compel medical staff to share crucial details to inform the decision-making process.
Social Security is a different ballgame. Here, no marriage means no survivor’s benefit. Don’t expect that to change anytime soon. That opens the door to conversations about life insurance.
“Unmarried partners may want to purchase life insurance policies and name each other as the beneficiaries,” adds Schwab’s Reyes.
