Question:

We are in a half-century long loving and trusting (but not legally joined) partnership and are finding our end of life planning especially challenging. We cannot marry because one of us has a remote (but realistic) possibility of experiencing something that would bankrupt both if we were married. (Nothing illegal involved!) For this reason, we have managed our finances separately. Our dwelling is owned by the person not at risk. Without sharing the protections married people can provide for each other, we have been struggling to make plans so we can provide as much safety and financial security for the other when one of us dies as we have been able to during our lives. We live in a state with estate taxes which would affect us, among other challenges. In our efforts to understand how to best protect each other, we have read widely (including your wonderful book) but have not found reliable and thorough resources for addressing our situation. It may be that this question is too idiosyncratic for your website. If so, are there resources you can recommend? Other than the hitches that accrue from our single-though-coupled reality, your book is the most useful thing we have found.

Response:

First, thank you for your comments about my book.

Second, at least in theory, I don’t think this should be too complicated. If most of your assets were in the name of the partner who is not at risk, he or she could place such assets in a revocable trust for the benefit of both partners. If that partner were to die first, the trust would become irrevocable and protect its holdings for the surviving partner. They would be protected in the event of lawsuit. Both partners could be co-trustees of the trust in terms of managing the investments, but the at-risk partner could not control distributions from the trust. If the partner who created the trust died first, and the surviving partner wanted access to principal, he or she would have to appoint an independent co-trustee. The biggest drawback to this approach as I see it is that if the value of the trust were more than estate tax threshold for your state, then there would be an estate tax upon the death of the partner who created the trust. This could be mitigated by leaving some funds in the name of the at-risk partner, despite the risk of litigation.

Third, to the extent funds are left in the at-risk partner’s name (or his or her trust) for tax planning purposes, the risk might be mitigated if it’s an interest in your home through the use of a homestead declaration, which can protect equity for each owner. In addition, 401(k)s and IRAs also provide significant asset protection.

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