The Basics of Estate Planning for Unmarried Couples in California

Estate planning is the process by which a person decides who will receive their property after death and who might be entrusted with looking after their person and/or assets if they  suffer a catastrophic health event that renders them incapacitated. Contrary to prevailing opinion, estate planning is not just for the wealthy; it is something everyone needs and should consider.

This blog will describe why estate planning is particularly important for unmarried individuals and couples for whom the law provides no default option.  

What Is a Common-Law Marriage & How Does It Impact Estate Planning?

The law provides certain legal rights to spouses. Parties to a valid marriage enjoy survivorship rights, community property rights, and are often empowered to make medical decisions for incapacitated partners as “next of kin.”

Many unmarried partners mistakenly assume that the length of their relationship or cohabitation will create legal rights in California through what in some states is known as a common law marriage. California does not recognize this concept but does provide some rights for cohabiting unmarried couples. Partners with no legal relationship (unmarried partners, for example) do not enjoy those rights because they are “legal strangers.”

That is, despite the deep personal relationship that may exist between the partners, the law does not recognize that partnership or recognize the partners as members of a family unit, entitled to the rights, privileges, and benefits of spouses. Because of the absence of a legal relationship between these partners, members of such a partnership are often at a loss when their counterpart is incapacitated or passes away. 

With proper estate and incapacity planning, however, unmarried partners can ensure that they are able to function in a way that is as close as possible to that of a married couple, without the legal bond of marriage. That planning can include coverage for myriad legal situations such as incapacity, death, division of joint property, hospital visitation rights, and guardianship of minors or dependents.  

Without proper planning by a California estate planning attorney, the decisions on these topics cannot be made by one’s unmarried partner. Where a couple decides that marriage is not the best option or where a couple intends to be married but catastrophe strikes before the marriage is completed, proper estate planning can be the difference between inexpensive and convenient tools on the one hand, and those that are far more expensive, time-consuming, and unpredictable on the other.  

The Basics of Estate Planning That Every Unmarried Couple Needs

Regardless of what assets one owns, every couple (and, in fact, every single person) should have a will, a durable power of attorney for financial matters, an advance health care directive, and, in many cases, a revocable living trust. Each of these essential estate planning documents will be addressed below.

Last Will and Testament

A last will and testament (or a “will”) is a document by which the signer (known as the “testator”) states whom they want to receive their property, and, where minor children are involved, whom they would nominate as a guardian for those children if they  were to die while the children were minors. The testator also may appoint someone to act as the “personal representative” or “executor” to open a formal probate proceeding, collect and inventory their assets, pay their debts, and then distribute their property to those entitled to receive it.  

Wills must be signed (or “executed”) with certain formalities to be valid. If the material provisions of a will are not in the testator’s handwriting, the signing of the will by the testator generally must be witnessed by at least two people who witness the testator’s signature and the signature of each other at the same time and who understand that the instrument that they are signing is the testator’s will. It is also possible for someone other than the testator to sign in the testator’s name but in the testator’s presence and at the testator’s direction, or by a conservator pursuant to a court order to make a will. 

A will that does not meet these criteria can still be valid (whether or not witnessed) if the signature and the material provisions of the will are in the handwriting of the testator. This is what is known as a “holographic” will.  

One who dies without a will is said to have died “intestate.” Here, the California Probate Code prescribes who will receive the testator’s property. Contrary to popular belief, your property does not revert to the State of California in this case.

However, a surviving unmarried partner of a decedent has absolutely no property rights in this case by operation of law. This is why it is so very important to consult with a skilled estate planning attorney to ensure that one’s surviving partner is provided for in the estate plan. 

Joint Accounts/Survivorship

Owning property or accounts in one’s sole name is not the only way, of course.  Parties may own property in joint tenancy with rights of survivorship. This property is not included in a probate estate because it passes — by operation of law — to the surviving owner at the decedent’s death.

For example, if two unmarried partners own a home in “joint tenancy with right of survivorship,” on the death of the first partner, the property is owned 100% by the surviving partner. However, there are certain tax-based benefits afforded to members of a marital community as to community property that are not afforded to a surviving unmarried partner. Similarly, where two people are joint owners of a bank account and one dies, the survivor owns the entire account, regardless of who made the deposits. 

Owning property in joint tenancy also comes with liability considerations. If two life partners own a home or an account as joint tenants, the property held in this fashion is available to the creditors of both partners.

So, if partner A adds partner B to the title of partner A’s home, and Partner B is liable for a debt, the asset is available to satisfy the creditors of Partner B. Also, adding a person to the title may come with certain gift tax consequences that do not arise if a gift is not made during life.

For this reason, unmarried partners should consider seriously whether holding title to property or financial accounts in this way is the best way to accomplish their goals. It is always advisable to discuss these options with a California estate planning attorney who is well-versed in these options and can present the benefits and costs of each one. While joint tenancy is easy to establish and does not require legal counsel, there are countervailing considerations.

Beneficiary Designation/Pay on Death (“POD”)

Another popular option is to name your partner as the beneficiary of your account on death. For example, an unmarried partner can be the beneficiary of a retirement account or life insurance.

Also, he or she can be the “pay on death” beneficiary of certain accounts. That is to say that the account holder can nominate that person to receive that asset on death with no rights during life and without making these assets available to the creditors of the beneficiary.  

Here, the owner retains full ownership and control of the account and is liable for income tax on any interest or dividend income generated therefrom. This can be advantageous in certain circumstances and a discussion about this should be had with estate planning counsel before these steps are taken.  

Durable Power of Attorney for Financial Matters

In this document, the principal (the signer of the document) nominates a trusted person to serve as their legal representative if they become incapacitated. In this way, the partner with capacity will be able to engage in financial transactions for the incapacitated principal and on that principal’s behalf including (but not limited to) real property transactions, stock and bond transactions, insurance transactions, operating a business, and many others.  

However, it is also possible to sign a power of attorney that is immediately effective. That is to say that a principal can give an agent the power to make financial decisions for them (as principal) as to all possible powers or only some (such as real estate transactions).

An example of this would be if the principal plans to be deployed or traveling for an extended period of time and wants to appoint someone to handle their financial transactions (or complete the sale of a parcel of real property, for example) while they’re unavailable. Such a power of attorney can be limited in terms of time or in terms of breadth.  

A durable power of attorney is a very important document. Because it is used and often springs to life upon incapacity, a skilled estate planning attorney should be consulted to ensure that everything is done correctly. 

Power of Attorney for Health Care/Advance Health Care Directive

In this document, the principal nominates someone to make medical decisions for them if they are  incapacitated, or – if they  prefer – immediately. Without it, the unmarried partner with capacity (who is - again - a “legal stranger” to the incapacitated partner) has absolutely no legal rights with respect to the health care of the incapacitated partner. For this reason, it is especially important to consult with an estate planning attorney to help navigate these waters.  

Further, the advance health care directive allows the principal to state preferences regarding life support, organ donation, disposition of remains, and other very personal preferences relating to life, health, and – eventually - death. Without this guidance, the family may not know what the principal desired or worse, may disagree about what they believe he or she wanted. With the documents in place, there is no question. 

As with the power of attorney for financial matters, this document usually becomes effective on incapacity. However, the principal can also execute an advance health care directive or power of attorney for health care effective immediately. Where one's health is in decline, and one wishes to grant to a partner the ability to make healthcare decisions without the need to prove incapacity, this document can be especially useful.

Revocable Living Trust

Volumes have been written on the topic of revocable living trusts. For many reasons it is often advisable for unmarried partners to each have their own revocable living trusts, naming the other as primary beneficiary. This keeps separate property separate but permits each partner to provide for the other upon death or incapacity.

Often these reciprocal trusts have mirroring provisions, and each partner nominates the other as successor trustee. Sometimes, both partners are co-trustees of both trusts so that each can manage the property in each trust together for the benefit of both partners.   

Of course, a trust is only relevant and operable as to assets titled in the name of the trust.  This is why “funding” a trust is vitally important. Funding a trust is the act of transferring property into the name of the trust.

For real estate, this is often done by a quitclaim deed.   Although such a transfer is technically a change of ownership, California law provides for an exclusion from property tax reassessment for property transferred to such a revocable living trust, but a certain exemption form must accompany the deed when it is recorded. 

Although a trust asset only avoids probate if it is in the trust, like many rules of law there are exceptions. If an asset is listed on the trust’s “Schedule of Assets,” or there is some other evidence that the settlor of the trust intended for the property to be trust property, an argument can be made to the probate court to consider the property as though it were in the trust and avoid probate.  

Don’t Leave Your Legacy to Chance Without an Estate Plan

Without a legally valid, professionally crafted estate plan in place, your next of kin may suffer the emotional and financial consequences. There are many different ways to provide for yourself and your family with a properly drafted estate plan. That may include a living trust, powers of attorney, survivorship provisions, and a will and/ or trust. While there are many do-it-yourself options on the Internet, these should be avoided.  

Mistakes made by cutting corners and declining professional advice can result in invalid documents when they are most needed. For that reason, it is very important to consult with an experienced San Diego Trust and Estates attorney who can tailor your estate planning documents to your needs and your family situation. Contact Cage & Miles today to schedule a free consultation with one of our attorneys. We look forward to helping you through this complex process.