McCarty: Tips for general practitioners: Estate planning for the unmarried

For those of you who don’t have an active estate planning practice, Indiana Code provides multiple safeguards for surviving spouses of an intestate decedent that are not provided to a surviving unmarried partner. Careful estate planning for unmarried couples can make up for these differences.

Intestate succession

The surviving spouse of a decedent who dies intestate is entitled to 50% of the decedent’s real and personal property if the decedent is survived by a child (or issue of a child), 75% if decedent is survived by one or more parents (and no issue) and 100% if decedent left no surviving issue or parents. Intestate succession is less generous for surviving spouses who are decedent’s second (or subsequent) spouse, but the law still provides for a claim for some portion of decedent’s property. See Indiana Code § 29-1-2-1(b).

In contrast, the surviving partner of an intestate decedent is not entitled to any portion of the decedent’s property. As a result, nonmarried partners who want to provide for their surviving partner must express this intent in writing. This can be done via a will or by designation on a deed, title or account.

Spousal election

Indiana law does not require spouses to provide for each other in their will. However, if a decedent’s will does not leave anything, or leaves a smaller portion to the surviving spouse than intestate succession rules would, the surviving spouse may “elect” to take property against the will. This “elective share” is equal to “one-half (1/2) of the net personal and real estate of the testator.” I.C. 29-1-3-1.

A surviving nonmarried partner has no such option. If the decedent had a will and failed to name his or her partner, the surviving partner has no right to any portion of the decedent’s probate assets.

Spousal allowance

In addition to the spousal election, a surviving spouse of an intestate decedent, or one who claims their elective share against their spouse’s will, is entitled to claim up to $25,000 of the decedent’s assets, regardless of what the deceased spouse’s will directs. I.C. 29-1-4-1.

Not surprisingly, a nonspouse surviving partner is not entitled to the spousal allowance or any other claim against the decedent’s estate.

Estate tax

Married couples have an “unlimited marital deduction” via the Internal Revenue Code, which permits the transfer of assets to their surviving spouse without incurring estate or gift taxes.

Unmarried couples are not entitled to this tax benefit. Unmarried partners who have assets significant enough to be subject to gift or estate taxes are treated the same as every other unrelated individual.

Right of survivorship

In Indiana, jointly owned assets of a married couple are presumed to be owned as “tenants by the entireties.” As a matter of law, tenancy by the entireties, or TE, is limited to married couples. One significant benefit to TE ownership is the automatic right of survivorship upon the first death, whether the decedent had a will or not. The TE property is said to pass to the surviving spouse “outside of probate.”

Assets that are jointly owned by nonmarried couples are presumed to be owned as tenants in common, meaning each person is presumed to own 50% of the asset. If the partners want to avoid a 50-50 split of such assets upon the death of the first partner, jointly owned assets must be titled as joint tenants with rights of survivorship.

Estate planning for unmarried couples

Because state law does not provide the same protections to unmarried partners as it does to married couples, an attorney drafting an estate plan for unmarried partners must ask a lot of questions:

• Whose name is on the title to the house they live in?

• Do they have a joint bank account?

• For any individually held accounts, have they named a payable on death recipient?

• How are their cars titled?

• Has either of them added a payable on death designation to their bank or investment accounts?

• Who is named as the beneficiary of their retirement accounts?

As noted above, if one name is listed on a title or account, the surviving partner is not entitled to any part upon the death of the named owner (unless specified in a will). If both names are listed on a title or account, they are presumed to own the property as TE, and each owns 50%. If the title or account indicates JTWROS, the surviving partner would own 100% and the asset would pass outside of probate. The attorney should explain what would happen to each ownership type of property upon their death and make certain that their will or property designations reflect their wishes.

Take, for example, an unmarried couple who live together in a house that is titled solely in Partner 1’s name. Both partners treat the house as their home, both contribute to the upkeep, and both pay the mortgage, taxes and other costs of home ownership.

If Partner 1 dies without a will, the house will pass to her decedent’s children, if any; or, if decedent did not have surviving children, to her living parents, if any; or, if not, to the decedent’s siblings. Surviving Partner 2 will receive nothing through intestate succession. Even worse, the survivor will not have the legal right to remain living in the house.

Partner 2’s contribution to the equity in the house, even over many years, does not give them a right to the house or a claim against its value, either. Typically, the survivor’s contributions to homeownership are treated as a gift to the decedent, or as payment in lieu of rent.

Now assume that Partner 1 changes the deed to the house to name her partner as a co-owner. If the deed states “Partner 1 and Partner 2” without any indication of marriage, they are tenants in common and each is deemed to own 50% of the house. Upon the death of either partner, the surviving partner will continue to own 50% of the house, while the decedent’s 50% share will pass via will or intestate succession. If Partner 2’s will devises their interest in the house to surviving Partner 1, then Partner 1 would own 100% of the house. If Partner 2’s will names someone else, or if Partner 2 dies intestate, surviving Partner 1 still owns their 50% share and would co-own the house as a tenant in common with a new co-owner. In that scenario, the owner of Partner 2’s 50% interest could force the house’s sale via a partition action, even if Partner 1 does not want to sell.

If Partner 1 wants her surviving partner to own the house outright upon her death, she can retitle the house as “Partner 1 and Partner 2 as joint tenants with right of survivorship,” or by adding a transfer on death clause naming Partner 2. If Partner 1 intends instead to devise the house to someone else, she can change the title to give Partner 2 a life estate, entitling Partner 2 to continue living in their house for the rest of their life.

Indiana law provides protection for surviving spouses that are not extended to surviving unmarried partners. Careful estate planning can extend those protections and ensure a surviving partner is not literally left out in the cold.•

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Melissa McCarty provides estate planning advice to individuals — both married and unmarried — at Kroger Gardis & Regas, LLP. Opinions expressed are those of the author.