Cohabitation without marriage has become an increasingly common way of life for people in the United States. For older individuals, cohabitation is often intended to be a way to enjoy the companionship of another without risking losing assets for the future generation. While attempting to preserve assets, however, cohabiting couples frequently overlook common pitfalls when putting together their estate plans. The following are some estate planning challenges that go hand-in-hand with cohabitation. 

Challenges Involving Medicaid

Cohabitation does not offer the same protections under Medicaid rules as marriage. Under Medicaid rules, a person must have less than $2,000 in resources to qualify for Medicaid. Some exceptions, however, exist to this rule which permit the protection of assets. One exception to this limit involves community spouses. When a person is institutionalized at a facility, the spouse who still resides at home cannot end up destitute. Substantial allowances are permitted for community spouses. Community spouse exemptions do not include unmarried partners who lived together. Allowances are only for spouses. 

Lack of Legal Protection

When a cohabiting person passes away, no legal system exists to protect the surviving cohabitor as if they were a surviving spouse. After all, when a married person passes away, the surviving spouse has an interest in the deceased person’s estate even if the deceased individual did not leave behind a will or other estate planning documents. Remember, if you pass away without a will that passes your estate to your loved one, undesirable results can occur. 

The Loss of Tax Exemptions

A federal tax currently permits the first $11.7 million of a person’s estate to be exempt from taxes. It is important to understand that if you cohabit with someone, both individuals must file an individual tax return at the year’s end. Unmarried couples are not permitted to file joint tax returns. A narrow exception exists if your state recognizes your relationship as a legal marriage.

Assets Can be Lost in Probate

If your assets pass through probate and you live with someone to whom you are not married, there is a good chance that the intestacy process could leave your partner without these assets. As a result, it is a good idea to create an estate plan that makes sure your assets avoid probate and pass on to individuals who want to receive them. To avoid probate, you should consider transferring your assets to a living trust. A living trust is vastly different from a will and avoids probate. You might also decide to appoint your live-in partner as the joint tenant of your house. Joint tenancy refers to a type of property ownership in which two or more individuals own a property together. 

Obtain the Assistance of an Estate Planning Attorney

Navigating the estate planning process can be difficult, but the assistance of a skilled estate planning lawyer can help. Contact attorney Jim A Lyon today to schedule a free case evaluation.