Hey there! Let's talk about something that might not be the most exciting dinner conversation, but is absolutely crucial if you're in a committed relationship without that marriage certificate. More people are opting to live with their significant other without tying the knot, with the number of unmarried individuals living with a significant other in 2023 up more than 40% two decades before. But here's the thing – while love might make the world go 'round, it doesn't make the legal world any easier to navigate.
The Reality Check Nobody Wants to Hear
Let me be blunt: “Unmarried couples are little more than strangers in the eyes of the law, with no legal stake in each other's estates, nor the right to make financial or medical decisions on each other's behalf,” says Theresa Le, a senior trust services consultant at Charles Schwab Trust Company (Charles Schwab, “Estate Planning for Unmarried Couples”). Ouch, right? But it's true, and that's exactly why we need to chat about this.
Take Brenda's story, for instance (names changed for privacy). This college professor learned this the hard way when her partner, Randy, was diagnosed with cancer in his 30s and quickly lost the ability to make medical decisions for himself. Randy's parents, who disapproved of his relationship with Brenda, completely shut her out of Randy's medical treatment, even barring her from visiting him in the hospital.
In another instance, Deborah, a woman in her mid-forties with two young children and a long-term partner named Steve. When Steve unexpectedly passed away without a will, Deborah discovered that the family home—registered solely in Steve's name—would have to be sold to split assets equally among his three children, including one from a previous relationship. Suddenly, Deborah and her two young children faced homelessness, despite having built a life together with Steve for years.
This isn't a rare occurrence – it's a wake-up call about what can happen when proper legal protections aren't in place.
What's New in 2025? Some Pretty Big Changes Coming
Before we dive into the how-to's, let's talk about what's happening right now that affects your planning. The IRS has been busy making some updates for 2025:
The Good News:
- The IRS annual exclusion for gifts (the total amount exempt from reporting) is raised to $19,000 per person (up from $18,000 per person in 2024)
- The estate and gift tax exemption will be $13.99 million per individual for 2025 gifts and deaths, up from $13.61 million in 2024
The Plot Twist: Here's where it gets interesting (and a little scary). The lifetime gift/estate tax exemption is projected to be $7 million in 2026 – that's roughly HALF of what it is in 2025! This massive drop is due to the Tax Cuts and Jobs Act provisions expiring. So if you've got significant assets to transfer, 2025 might be your golden window.
Real Stories, Real Consequences
Let me share some examples that really drive home why this matters:
The Apartment Building Managers: Benjamin recalls an unmarried couple who co-managed the large apartment building in which they lived during their nearly 40 years together. Imagine 40 years of building a life together, only to face potential legal battles over property rights because they didn't have the right paperwork in place.
The Tax Strategy Couple: Mia and Jon (names changed for privacy), a California couple, also have a home and one child together, while Jon has a son from a prior relationship. They held a wedding ceremony and refer to each other as husband and wife but never made it legal due to the significant annual federal tax increase they would experience by combining incomes. In addition, Jon's son qualifies for need-based student financial aid based on Jon's income, but if he and Mia were to file jointly for federal purposes, that aid would go away. Smart financial planning, but they need extra estate planning protections.
The Emergency Surgery Case: An unmarried couple in their 40s or 50s with grown children from previous relationships who jointly own a house. Both are self-employed. The bombshell is that one partner has been diagnosed with a life-threatening illness. Neither have a Will. Talk about a wake-up call!
The Building Blocks of Protection
1. Beneficiary Designations: Your First Line of Defense
This is your secret weapon! Beneficiary designations are like a express lane – they bypass the whole probate mess and get your assets directly to your partner, usually within weeks. Here's what you need to update:
- Retirement accounts (401k, 403b, IRA) – But heads up: non-spousal beneficiaries can't maintain the tax-deferred status of the account and will need to pay income tax on this portion of their inheritance.
- Investment accounts with Transfer on Death (TOD) or Payable on Death (POD) designations
- Life insurance policies – Super important since “The loss of a partner's Social Security benefit can be catastrophic to the survivor's finances,” so unmarried partners may want to purchase life insurance policies and name each other as the beneficiaries.
2. How You Own Things Actually Matters A LOT
The way your names appear on deeds and accounts isn't just paperwork – it's your financial future. Here are your options:
Joint Tenancy with Rights of Survivorship (JTWROS): This is usually your best bet for unmarried couples. Owning houses, cars and boats as joint tenants with rights of survivorship allows the surviving partner to take control of and full ownership of the entire property by law irrespective of whether they have established a Will or revocable trust.
Tenancy in Common: Two (or more) parties own a piece of property. Each owner can control a different percentage of the property, meaning you don't have to split the property 50/50 with your partner. Unlike joint tenancy, the surviving property owner does not automatically receive the other owner's rights to the property when they pass.
3. The Documents That Could Save Your Relationship (Literally)
Wills – Not Optional: “Otherwise, the probate court will distribute your assets in accordance with your state's intestate succession law. In most states, that means your parents, siblings, or other next of kin will inherit your assets, with no legal recourse for your partner.” Yikes!
Health Care Proxies/Advance Directives: Remember Brenda's story? Don't let that be you. You don't have the legal right to make health care decisions for your partner without one. Plus, you can't see her medical records without one. You might not even be able to visit her in a hospital in some situations.
Financial Power of Attorney: “Married couples often have shared accounts, which means they can easily access funds to pay bills or take care of day-to-day expenses.” But unmarried couples need explicit permission through a durable financial power of attorney.
The Cohabitation Agreement: Think of It as a “Prenup for the Unmarried”
While the enforceability of such agreements may be questioned in some instances (e.g., a trust or will is likely to overrule the contents of a cohabitation agreement), many couples are choosing to implement these legal documents as a way to clarify everything from financial responsibilities during and after the relationship to pet guardianship to the distribution of jointly owned property in the case of a breakup.
This document can cover:
- Who pays for what during the relationship
- How property gets divided if you break up
- Even pet custody arrangements!
When Trusts Make Sense (And When They Don't)
Trusts aren't just for the ultra-wealthy anymore, but they're not right for everyone either. “With a trust, you can give your partner access to the assets while protecting the assets from liability issues. For example, if your partner is involved in a car accident and is sued, the assets in the trust may be protected from the lawsuit.”
Generally, you're looking at trusts if you have over a million in assets, multiple properties in different states, or complex family situations with kids from previous relationships.
The Tax Elephant in the Room
Here's where unmarried couples really get the short end of the stick. “When you are an unmarried couple living in a domestic partnership you lose most, if not all, of the federal government benefits provided to married couples. A surviving spouse who is a U.S. citizen is eligible to take advantage of the unlimited marital deduction, which means that all funds received by the surviving spouse would be received free of any federal and state estate tax.”
For unmarried couples, if your partner's estate exceeds $13.99 million in 2025 (or potentially just $7 million in 2026), you could be looking at a 40% federal estate tax bill. Ouch.
Common Law Marriage: Not What You Think
While the misconception persists that a couple is in a common law marriage after they have lived together for seven years, common law marriage is only possible in a handful of states. Don't count on this to save you – it's a myth in most places!
The 2025 Window of Opportunity
With those massive estate tax exemptions dropping in 2026, this might be your last chance to take advantage of the current high limits. For married couples, another $760,000 starting in 2025 can be gifted tax-free compared to 2024. For unmarried couples with significant assets, this could be a crucial planning year.
Your Action Plan (Because Procrastination Isn't a Strategy)
- Update ALL beneficiary designations – seriously, check them annually
- Get your basic documents in place: will, health care proxy, financial power of attorney
- Review how your property is titled – make sure it matches your intentions
- Consider a cohabitation agreement if you're living together
- Talk to an estate planning attorney, especially if you have significant assets
- Don't forget the practical stuff – create a simple roadmap for your partner showing where accounts are, passwords, etc.
Looking Ahead: Potential Changes Coming
There's some interesting stuff happening globally too. In the UK, the Labour Government pledged to strengthen the rights and protections of those in unmarried relationships. In February 2025, it was announced the Government are set to consult on a reform on cohabitation rights later in the year. While this doesn't directly affect US couples, it shows the growing recognition that unmarried couples need better legal protections.
The Bottom Line
Look, nobody likes thinking about death, disability, or breakups when you're in love. But “Particularly if you've combined your finances or have kids together, it's urgent you make a plan to protect each other and your family.”
The estate planning world might seem like it's built for married couples, but with the right planning, you can create the same protections. And honestly? Sometimes you can do even better with more flexibility.
The key is not to put this off. As soon as you're committed to a future together, it's probably time to commit to a shared estate plan. Your future selves (and your bank account) will thank you.
Resources and Next Steps
The process might seem overwhelming, but many employers offer employee assistance programs that include basic estate planning help. Start there if you need to, but don't let perfect be the enemy of good – having basic documents in place is infinitely better than having nothing at all.
Remember, this isn't just about money – it's about making sure the person you love can take care of you when you can't take care of yourself, and vice versa. That's what love in action actually looks like.
Sources: Charles Schwab Trust Company, Journal of Accountancy (April 2024), Ballard Spahr LLP, City National Bank, IRS Revenue Procedures, and various estate planning legal publications. Case studies mentioned are real situations encountered by estate planning professionals, with names changed for privacy protection. Always consult with a qualified estate planning attorney for advice specific to your situation.
