Do you have a “non-traditional family”? You may think of that one crazy uncle or that cousin who often has a few too many at the family get together. A variety of things probably come to mind when you hear this term and it will be very different for all of us. For our purposes, we are going to define non-traditional families to mean families that include: single parents, unmarried couples, married couples with children from more than one relationship, people in second or third marriages, and/or grandparents or other relatives caring for children.
Estate planning for non-traditional families can look very different and be even more important than it is for traditional families. That does not mean that traditional family structures should not plan, it just means that many of the presumptions and protections of the law were put in place for the traditional family arrangement – husband and wife, married for years that have kids together. They enjoy things like tax-free rollovers to retirement benefits, an unlimited marital deduction, a portability election for a deceased spouse’s unused federal tax exemption to name a few.
The goals of most families are likely the same: name someone to care for minor children if the parent(s) die early or becomes incapacitated, nominate someone to be in charge of your estate, designate who you want to have your assets when you are gone and how they should be distributed, minimize disputes and maximize the amount of your estate you can pass on.
Let’s take our unmarried couple for an example, who have adult children from a prior relationship. Bill and Sue were both married early in life and have since divorced their prior spouses. They have no plans to get married again. However, they do plan to stay together for their remaining years and care for each other.
Imagine a scenario where Bill is hospitalized after a heart attack and needs someone to make healthcare decisions on his behalf. Sue will not automatically be permitted to step in and make decisions for Bill. She is not likely to be recognized by the medical staff as someone who can step in to make decisions for Bill since she is not his spouse under the law. From the financial side of things, Bill and Sue decided to each keep “their own” checking accounts. If Sue is not named as a joint owner or signer on Bill’s bank account, she will not be able to access Bill’s checking account to help pay bills on his behalf. To ensure both parties can act to take care of each other, they should at a minimum have a health care directive and a power of attorney naming each other.
Bill and Sue could also encounter another issue related to their home where they currently live together. When Sue was divorced, she retained the home. Bill and Sue decide they like the location of Sue’s house the best and he moves into the house with Sue. No changes are made to the title of the house, it is still owned by Sue. Bill helps pay for the property taxes, utilities and repairs as if it was his house too. If Sue passes away, Bill has no legal right to stay in the house and her children could push Bill out of the house as they are trying to wrap up their mom’s estate.
As you can imagine, this can create some friction between Sue’s children and Bill. This may not have been what Sue and Bill intended. Sue may have wanted Bill to be able to stay in the house for as long as possible. However, without spelling out their wishes and preparing an estate plan Sue and Bill created some unintended consequences.
Planning does not have to be complex. Simple steps like a healthcare directive and power of attorney are very helpful. To complete a comprehensive estate plan, all financial accounts and assets should be reviewed with your attorney. Thought should be given to the titling of any real estate involved. A trust may be needed to hold title to the house where Sue provides that Bill can live until he passes then the property will transfer to her children. There are pros and cons to all of the options. Sit down with your attorney and start the discussion so that your wishes and goals are met.
Please send me an email at firstname.lastname@example.org with any topic suggestions or requests you may have. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it. Here’s to a great new year – 2017.