Why estate planning is so important if you are unmarried
There is a popular misconception that unmarried couples who have lived together for a long time -- and maybe even have had children together -- will, for legal purposes, be treated as a married couple. The fact is, though, that this is not true. And when it comes to estate planning, the “default” legal positions for married and unmarried couples are very different.
In general, unmarried couples who do not have wills and do nothing about estate planning can expect to pay a higher rate of inheritance tax and may face intestacy rules that force the disposition of their assets in a way that that they might not want or intend.
What happens when an unmarried partner dies without a will?
Consider, for example, an unmarried couple who have lived together for many years and who have several children. If one of them were to die without a will, the intestacy rules would apply. Under those rules, the deceased’s entire estate would go to the children in equal proportions. The surviving partner would have no automatic right to any part of the estate and would need to make an application to the court in order to claim some share of the deceased’s estate.
If the couple had no children, then the deceased’s estate would go to other family members of the deceased. Again, the surviving partner would have to apply to the court to make a claim against the estate for financial provision. (Note, however, that the legislation governing such applications applies only in England, Wales and Northern Ireland. In Scotland, there may be remedies for a surviving cohabitee under the Family Law (Scotland) Act 2006).
So it is easy to see why it is particularly important for unmarried partners to have wills – at least where they are concerned about making financial provision for the surviving partner when one of the partners dies.
Inheritance tax and unmarried couples
Two major inheritance tax (IHT) advantages that married couples have are (i) the fact that one spouse can make lifetime gifts to the other without incurring IHT liability, and (ii) the ability to, in effect, combine their nil-rate IHT bands.
Unmarried couples are not eligible for that tax treatment, but there are some tax planning measures that unmarried couples can take in order to minimise IHT liability on the death of each partner. For example, where the couple has children it may be possible to use a trust in order to give the children the benefit of the nil-rate band that belongs to the first partner to die. That can significantly reduce the overall exposure of the couple’s estate to IHT and therefore leave their children with a larger proportion of their assets.
Without estate planning, an unmarried couple with significant assets will -- all other things being equal -- almost always pay more IHT than a married couple in similar circumstances.
It’s not too late to plan
The good news is that where both unmarried partners are still alive, they can plan for the disposition of their respective estates by making wills and by getting appropriate tax advice and putting it into effect. They can also consider items such as living wills and lasting powers of attorney, which may assist one partner in caring for a partner who becomes incapacitated.
Getting help with estate planning
There are many solicitors and other professionals who are skilled in estate planning and who are able to advise unmarried couples as to their particular needs. If, however, you don’t regularly use solicitors, finding the right one can be daunting. In this case, you may want to use a free solicitor-client matching service like Contact Law.