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Estate Planning for Unmarried Couples in Michigan

For unmarried couples In S.E. Michigan Only: Call 248-676-2233 to make an appointment with an Attorney.

In this day and age, it is very common to see people living together in a committed relationship as unmarried couples. Some younger couples choose to bypass the formality of marriage for a variety of reasons. For some older folks, it could be due to economic reasons such as the loss of benefits or income upon remarriage.

For others, it could be a statutory prohibition that prevents them from getting married. In 2004, Michigan voters passed Proposal 2 which prohibited same-gender marriage and became effective December 18, 2004. In addition, pursuant to MCL 551.271(2), Michigan law will not recognize a same-gender marriage that took place in another state.

Click Here to see the Statute

Whatever the reason or circumstance, estate planning for such unmarried couples is more crucial than for legally married persons.The reason advanced planning is so crucial, is that Michigan law provides default protections to a surviving spouse in a married relationship. For example, if the husband dies without a will, his property will be distributed pursuant to the law of “intestate succession.”

This means that even though he died without a will, the law provides a method to distribute the deceased’s property held in his own name to his wife, children and or parents. This is not so in an unmarried, co-habitation relationship. The rules of intestate succession do not provide any protection or share to an unmarried partner of the decedent.

Click Here to View the Rules of Intestate Succession

The surviving partner in the unmarried relationship may find themselves being legally challenged by his or her deceased partner’s estranged family members, especially in the case of same-sex relationships. Without proper planning, a widow from a married relationship of only 6 months, will have greater rights and protections than the unmarried surviving partner of a twenty-five year relationship.

While love is the single most important aspect of any relationship, no other aspect of that relationship is more important than the transfer of wealth. Money, real estate, stocks, bonds and life insurance will not be transferred to a person’s partner unless direct actions are taken to title property as joint ownership or add a loved one’s name as a beneficiary to the asset in question.

Even with both partner’s names on a deed for real estate, there can be problems. Married couples that purchase real estate together, take title to the land as “tenants in the entireties.” This particular type of ownership affords special protections that a simple “joint tenancy” does not provide and that is protection against a creditor of only one of the spouses. A creditor of one of the spouses, who may have a judgment in hand, can not attach the real estate of the non-party spouse. A husband and wife own an indivisible one half interest in the entire home and it cannot be partitioned.

On the other hand, with Michigan unmarried couples, If a home is titled in both names of the partners as joint tenants (with full rights of survivorship), a creditor of one spouse can force a partition of the home and take the debtor partner’s interest in the home. The same is true with joint bank accounts, etc.

Another caution here, in regard to real estate, is when an individual adds someone else as a joint owner of real estate, the addition of that name to the title is considered a gift by the IRS. This can lead to gift tax consequences to the person adding his or her partner as a co-owner.

Another danger for unmarried couples, is when real property is transferred in Michigan to another person, the transfer can cause an “uncapping” of the taxable value of the property for real estate tax purposes. Transfers between married spouses are not included in the definition of a “Transfer.” If the property being transferred has been held by the donor-partner for many years, the uncapping of the taxable value can cause a huge increase in the real estate taxes payable on the property.

Other obstacles could be encountered in a situation where one partner is hospitalized. In most cases, even without a medical durable power of attorney, doctors and hospital staff will look to a wife or husband and allow them to make decisions for their incapacitated spouse. In the case of unmarried partners, however, the unaffected partner may not only be prohibited from making medical decisions for their loved one, but may not be able to even visit them as they may be deemed “not family.”

This situation is a common scenario where it is critical that Michigan unmarried couples have signed Patient Advocate Designations and HIPAA (federal privacy law) forms in place that will allow the patient to designate who they want to make decisions for them while in the hospital if they are unable to make decisions for themselves. They may even wish to include a provision that will allow their partner to make funeral arrangements in the event of death.

Likewise, a general durable power of attorney is necessary to carry out business, banking, transacting contracts and the like on behalf of the incapacitated partner. Again, if there is no paperwork in place giving an unmarried partner authority to act as agent for the incapacitated partner, the results could be costly.

In the event of death, a surviving spouse has priority under the law to serve as the personal representative of the deceased even if the deceased did not leave a will. In the case of an unmarried decedent, a surviving partner is not given priority to serve as personal representative at all. If, however, the unmarried couple have their wills in place, each may designate who they want to serve as their personal representative and only then will the probate court give the surviving partner priority.

Work place benefits are another area where unmarried couples come up short in distribution strategy. The married spouse of a deceased worker can roll over a 401k into his or her own IRA. If the surviving spouse is still under age 70 ½ , he or she does not have to take minimum distributions immediately but can wait and let the money grow.

Unmarried partners do not have this luxury. A surviving partner, who is named as a beneficiary, will be required to start taking minimum required distributions immediately and pay the tax. Under most 401k plans, the plan administrator will pay out the proceeds of the fund over no longer than 5 years. This can have very serious income tax consequences for the surviving partner.

Another complication for Michigan unmarried couples in regard to company retirement plans, is the unwillingness to name their partner as beneficiary. Instead, they name their “estate” as beneficiary. This will unintentionally but effectively disinherit their partner. The retirement account will then be distributed to the deceased’s family by the Michigan rules of intestacy.

Additional problems arises when the employee forgets to update his or her beneficiary designation. If it has been some time since the establishment of the retirement plan, a change in circumstances would dictate changing beneficiaries so the right person gets the money. A beneficiary designation takes precedent over a will and controls who gets the money. If the plan holder dies without updating his or her beneficiary, the wrong person will get the money and there is nothing the surviving partner can do about it.

One option relating to an IRA or 401k for unmarried couples, is for each person to set up a revocable living trust. The employee can then name his or her trust as the beneficiary and by naming the partner as a beneficiary of the trust, transfer the wealth to the surviving partner. A trust can also be named as the beneficiary of a company provided life insurance policy. There are some basic requirements for setting up a trust as a beneficiary of retirement plans and other assets.

Click Here to Learn How Trusts Can Protect Unmarried Couples

Break ups are a fact of life and not all relationships last whether married or not. Under Michigan’s Estates and Protected Individuals Code (EPIC), the divorce of a married couple severs the former spouse’s rights as beneficiary or fiduciary in the other ex-spouses trust, will and powers of attorney. In addition, a divorce severs the joint ownership of any real estate they may have owned together and the surviving spouse will not have any “rights of survivorship” in property. Even if the formerly married couple fail to update their estate plans, Michigan law will protect their now individual estates from the former spouse.

Unmarried couples however, are not protected in the same way under Michigan law. There is no provision under EPIC to void a former partner’s interest as a fiduciary or beneficiary. This is why it is so very important to update individual estate plans when an unmarried couple end their relationship.

There are also tax consequences for unmarried couples when they split up and begin dividing up their assets. Federal law recognizes there is no gain or loss when assets are transferred between spouses and former spouses if the transfer occurs within one year of the separation. But, for unmarried couples, the transfer of property (both real and personal) can trigger taxable gifts and or taxable income.

Contemplating our own death can make us very uncomfortable and it may seem overwhelming to be planning now for what will happen after you die. But just imagine how devastated your partner will be when he or she learns you did not bother take care of them and attend to this vitally important issue when you had the chance!

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