Dear Quentin,
I have been in a committed, long-term relationship for over 14 years. My partner does not want to get married and believes that he will take care of me legally and financially if he precedes me in death. He is a loving and generous partner and I trust him, but I know that his arrangements are designed to protect himself while trying to take care of me at the same time.
We are both retired. We both have our own annuities and IRAs (traditional and Roth), and we serve as partial beneficiaries of these investments. He has no brothers and no children, while I have children and grandchildren. His personal property (including a valuable home) is in a revocable trust with me as the sole beneficiary. I'm not on the deed to our house.
My Trust Questions: What happens after he dies and what tax consequences will I deal with once ownership of the house passes to me? Is this property still hereditary? How will long-term capital gains work? I already know that property taxes will be adjusted based on the value of the home at the time of transfer.
What other financial or legal issues do I need to prepare for, assuming I outlive him?
Grateful in Florida
“The idea is in the title: A revocable trust gives the grantor, your partner, the freedom to make an amendment if he so chooses, unless he becomes incapacitated.”
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Dear Grateful,
You're right – for the most part.
He takes care of you legally and financially if he dies before you, as long as he doesn't change his mind in the meantime. The idea is in the title: A revocable trust gives the grantor, your partner, the freedom to make an amendment if he so chooses, unless he becomes incapacitated. In this case, a durable power of attorney or court-appointed guardian may be legally permitted to make changes. Trust assets also avoid probate. In the meantime, speaking with an attorney together can help.
If your partner died before you inherited the house, you'll get a step-up in basis, meaning you'll pay a capital gain on the value of the property when you inherited it rather than the price your partner paid for it (if you eventually decide to sell). Under Internal Revenue Service rules, you will also have a capital gains tax exemption of $250,000 as a single person upon the initial appreciation of the value of inherited property if you sell it.
The number of unmarried couples in the United States has risen to more than 17 million from 6 million over the past two decades, according to the U.S. Census Bureau. “In 1996, only 2% of partners in cohabiting households were 65 or older; by 2017, that number had tripled to 6%. Research also points to 'a big jump in cohabitation among older people,'” While divorced people also make up a large proportion of older cohabiting couples, the report adds.
But as an unmarried couple, it is wise to have a durable power of attorney or medical directive to ensure that you both have the legal authority to make financial and medical decisions in the event that one of you becomes incapacitated. Otherwise, liability will likely fall on the next of kin. Likewise, the trust must have some mechanism to allow withdrawals in the event that your partner becomes incapacitated and you need money to care for them.
“Florida laws do not clearly provide creditor protection for certain assets held under a revocable trust that are otherwise protected when held individually or in other trust instruments,” according to the Florida Bar Association. “These assets include annuity contracts, life insurance policies, and perhaps even household property. These assets, which are exempt from creditors, are usually owned by a single individual and can be paid into the trust in the event of death.
Common law marriage does not exist in Florida, and as such, you will not receive spousal benefits from Social Security or Medicare. You also cannot file a joint tax return and take advantage of any tax benefits that may be available. It's great that you have both saved money in your IRA and listed each other as partial beneficiaries, as many defined benefit pension plans will not automatically provide benefits to an unmarried partner.
Revocable trusts have become standard means of inheritance for unmarried couples, and yes, they protect the grantor if they wish to change their mind (in the event of separation). You've been together for 14 years, but if you have extra money, it wouldn't hurt to have your own investment property, if you live in your partner's house. This will help boost your financial independence, and perhaps give you peace of mind.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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