Estate Planning encompasses an examination of how a committed couple owns property, whether individually or jointly. While most personal property is held individually, real property may be titled individually or jointly for different reasons.

Personal Property

Personal property refers to all property and belongings that are not real property. One’s belongings in a household, from furniture to personal effects and clothing, are personal property. Though most household personal property is without title, it can be held individually or jointly, depending upon whether the couple acquired pieces before or during the relationship. Automobiles are an example of personal property that has title and is usually individually owned. One’s personal property may be expressly left to an unmarried partner through a properly executed Will or Trust.

Insurance

However, an additional consideration for unmarried partners living together may be how homeowners’ and renters’ insurance treats such household property. Unless both partners’ names are listed on the policy, only the partner listed on the policy will have their personal property covered. For example, if only one partner’s name is on the deed and on the mortgage, in the event of a fire or break-in, the homeowners’ insurance will cover only the personal belongings of the named partner. In that instance, it is advisable that the non-listed partner carry their own renter’s insurance for their belongings’ replacement value. In other instances, not all insurance companies will agree to insure unmarried partners on the same renter’s policy or automobile policy. It is advisable to make sure that your personal property and automobiles are properly insured as part of your overall estate plan.

Banking and Finances

Unmarried partners may choose to have jointly held banking accounts and credit cards for their household expenses. In the case of jointly held checking or savings accounts, it is advisable to make sure that they are held as joint tenants with right of survivorship. If a jointly held account lacks right of survivorship, upon the first partner’s death or incapacity, the account may be frozen and therefore inaccessible to the surviving partner. Credit cards with two card holders, though unmarried, can still affect the credit history and credit rating of the primary card holder. Unmarried partners, like married partners, should give thoughtful discussion and consideration to the topics of banking accounts and credit cards before sharing joint title or card privileges.

Importance of Beneficiary Designations

An essential component of any couple’s estate plan is to review beneficiary designations on all life insurance, qualified retirement accounts, and banking or investment accounts.

A Will cannot control to whom your bank accounts or life insurance policies will be paid upon your death. Every life insurance policy requires a beneficiary designation, or a policy held on your life may be paid automatically to your estate, subjecting life insurance proceeds to probate fees. Similarly, banking and investment accounts have a “Payable on Death” on “P.O.D.” designation.

Solely or jointly owned accounts can designate who should receive the funds upon the death of the owner or owners. We can work with you to review your life insurance policies and banking accounts to ensure that proceeds are paid directly to your partner or to a particular trust, depending upon your estate plan.

Financial Powers of Attorney

A common estate planning tool, whether for married or unmarried partners, is the durable power of attorney, also referred to as a financial power of attorney. Estate planning includes planning for incapacity, which is when an individual is mentally or physically unable to conduct his or her own financial affairs. By properly executing a durable power of attorney, naming one’s partner as Attorney-in-Fact, you can give your partner immediate, durable power to handle your financial affairs, regardless of your future incapacity. Marriage is not a requirement to name another person as your Attorney-in-Fact. We will discuss with you and your partner what powers and permissions you want to grant to one another to handle financial affairs. We can tailor a power of attorney to be as broad or as narrow as your circumstances or desires require.

Real Property

Real property, more commonly referred to as real estate, encompasses all titled houses, townhouses, condominiums, farmland, unimproved or raw land, and in some cases, timeshares. North Carolina has three major types of joint real property ownership. The most privileged of those three, known as tenants by the entirety, is available only to legally married couples. Property held as tenants by the entirety is protected from the creditors and judgments of a spouse. Only joint creditors of both spouses may reach a house held as tenants by the entireties. A second type of joint real property ownership is joint tenants with right of survivorship. Many unmarried couples choose to own their home as joint tenants with right of survivorship because when one partner dies, the other partner automatically becomes sole owner “by right of survivorship.” This is a common planning strategy, employed without the need for a Will, in order to leave the family home to the surviving partner. The deed to the real property must list both owners’ names and the words “with right of survivorship,” or the title is held as tenants in common, which is the third type of joint real property ownership. Tenants in common is jointly held property, but unlike joint tenancy with right of survivorship, each tenant’s interest may be passed by devise in a properly executed Will or by intestate succession. [Link here to N.C. Intestacy Law page]

For estate planning purposes, the choice of whether to hold real property as joint tenants with right of survivorship or as tenants in common may differ from couple to couple. How property is titled will affect the value of one’s total estate. Proper valuation of a decedent’s estate is essential to determining estate tax liability. For a married couple owning real estate by the entirety, when the first spouse dies, only one half of the equity in the real estate is includable in the decedent’s estate. This calculation is made regardless of how much each spouse paid into the equity in the real estate.

By contrast, the entire equity of the property held as joint tenants with right of survivorship is included in the valuation of the first partner’s estate. The only way to rebut this requirement is under the “consideration furnished” test. The “consideration furnished” test means that if the surviving partner can show how much each partner contributed to the equity in the real estate, only the amount contributed by the first to die partner will be included in his or her estate. However, this test places a high burden of proof upon the surviving partner to prevent having the entire equity placed in the first partner’s estate. In the case of unmarried partners with potentially taxable estates, it may be advisable to own their real property as tenants in common rather than by joint tenants with right of survivorship. This is one type of consideration which we can review with you and your partner when making your estate plan.

Conclusion

As discussed on the Gift Tax Considerations [link] page, unmarried partners with considerable income differentials or separately held mortgages must plan carefully in this area. There are numerous considerations for how unmarried couples should plan differently than married couples. As part of your estate plan, we can review your household income, major debts, accounts, and real estate with you to address potential pitfalls while acknowledging your intent to form a household together.

Contact Us:
Dan Brady - dbrady@bradynordgren.com, 919-782-3500
Tim Nordgren - tnordgren@bradynordgren.com, 919-782-3500
Daire Roebuck - daireroebuck@bradynordgren.com, 919-782-3500