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“Twilight Relationships” Require Careful Planning

Posted May 2016

More and more senior citizens who are widowed or divorced are establishing new “twilight relationships,” and if either partner has substantial assets, the financial and estate-planning issues can be considerable. In some instances a charitable gift may be part of the solution. Here are some issues to consider.

Getting married vs. remaining single
The partners may want a full, committed relationship and decide to marry because of religious principles and social acceptance. But it is becoming increasingly common not to marry because of the financial disadvantages—such as tax disincentives, loss of pension benefits, and liability for a partner’s medical expenses.

Whether the couple marries or cohabits, they will likely want to arrange their estate plans so that children and grandchildren by a previous marriage are not negatively affected. Indeed, children often become concerned when they learn that Mom or Dad is getting remarried or moving in with someone. It is important to consult an attorney and to execute appropriate documents in order to make sure that children and grandchildren are not inadvertently disinherited but also to ensure that the needs of the new companion are taken into consideration.

For instance, if the couple will marry, they might sign a prenuptial agreement. If they will cohabit, they might sign a cohabitation agreement. In the case of cohabitation, they should not combine assets but rather keep bank and brokerage accounts separate and each contribute for expenses. This could be advisable even if they are marrying.

Cohabitation vs. separate residences
A couple may cohabit or may retain separate residences. Some may not even have traditional residences: They may have moved to a retirement community and found love and friendship with another resident.

If they do decide to cohabit, one partner (often the one with the smaller residence) may dispose of that residence and move to the home of the other; this is common in order to save expenses. If the homeowner dies first and the property passes by will to the homeowner’s children, the surviving partner would be left without a place to live. To prevent such an outcome, the homeowner partner could provide in his or her will for the surviving partner to be given a life estate in the property, which would delay the children’s full ownership until that partner has died.

A charitable option: If the home-owning partner does not have children or has otherwise provided for them and would like to make a charitable gift, the property could be given to us subject to the surviving partner’s being able to occupy it for life.

Distributing assets
In some instances, one of the partners (referred to as Partner A) will have considerably more assets than the other (Partner B) and may be paying the lion’s share of the couple’s expenses. Partner A may want to ensure the financial security of Partner B but not leave an outright gift of capital—which might then wind up in the hands of Partner B’s children by a previous marriage. A possible solution is for Partner A to provide in his or her will for the establishment of a trust that will pay income to Partner B for life, whereupon the remaining trust assets would be distributed to Partner A’s children.

A charitable option: If Partner A does not have children or has otherwise provided for them, Partner A could provide by will for the establishment of a charitable remainder trust that would pay income for life to Partner B—and then distribute the remainder to us. A charitable remainder trust could also be suitable when a person wants to do three things: ensure financial security to a surviving partner, provide an inheritance to children, and make a future charitable gift. The trust would pay income to the surviving partner, then pay income to the children, and then distribute remaining trust assets to us.

These are but a few of the issues that arise in the case of twilight relationships. If you or your parents are involved in such a relationship, please contact us to arrange a discussion of plans that might meet your various objectives.

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