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Estate Planning for the Non Traditional Family

The “family” dynamic is changing. It is not uncommon for either a husband or a wife to have children from a prior relationship who may or may not be adopted by the new spouse, or a couple who has been together and lived together for years without every marrying. The following is a scenario to illustrate some potential problems:

Billy and Ashley

Billy and Ashley have been together for ten years. They love each other and are very committed but never married because they feel they don’t need a piece of paper to prove their love. Billy has a good job which allows Ashley to stay at home and run the house. Although they have talked about kids and want them in the future, they both are not ready to give up their lifestyle. Billy just bought a new motorcycle with part of his company bonus. Unfortunately, he was not a very good rider and the motorcycle got the best of him. Ashley was devastated by the loss. To add insult to injury, she discovered that the only asset with her name was the joint checking account. Their home, cars and other investment accounts were in Billy’s name only. Billy didn’t have any estate planning documents, such as a Will or a Trust, so his assets passed according the laws of intestacy (a defined order of beneficiaries in the absence of a Will). Ashley, as the girlfriend, is not legally recognized as a possible beneficiary of Billy’s estate according to the laws of intestacy. Billy’s estate ended up passing to his parents who sold the house to fund their own retirement. They felt bad about Ashley having to move from her home, but they never really liked her anyways because they felt like she took their precious son from them.

This story may sound far-fetched to some, but I have met with several “girlfriends” who easily could have had this happen to them. So what’s the moral of the story? There are two obvious solutions to the problem. First, if Billy and Ashley had married, Ashley would have been first in line to receive Billy’s assets through the laws of intestacy. Second, if they had created an estate plan, Billy could have named Ashley as a beneficiary. We can draft a trust agreement for non-married couples that achieves many of the same benefits provided to a married couple. Billy could have drafted a trust that stipulated that after he passes away, the assets would be held in a credit shelter trust. The credit shelter trust would use Billy’s exemption against the estate tax when he passes away and any growth would be transferred free of estate tax after Ashley passes away. The credit shelter trust can also be designed to add protection for a surviving spouse by appointing a co-trustee to help manage the trust assets. In situations when there are kids from a prior relationship, protections can be added to make sure that you can provide for your partner without the risk of your kids getting disinherited.

While estate planning seems like something that old people should do, it is also important for young couples to take steps that ensure their “family” is protected, especially if their “family” is different from the traditional husband and wife. The Dana Law Firm can help you with your estate planning needs regardless of how you define “family”.