Working with an experienced team of professionals can
alleviate many pitfalls, heartache, and angry feelings in the event of death of
a partner. An estate planning attorney, tax accountant, and financial planner are
the ideal team needed to get started.
A will is
an essential estate planning tool. Without a will, you will die intestate
meaning that your property will be distributed according to the interstate
succession laws in your state. If you are a same sex couple, dying intestate
will almost always yield an undesirable effect because interstate intestate
laws rely on legal relationships of marriage and parentage which means that
your partner and partner’s children will have no rights to your property. You
can be prepared for a challenge to your will with the use of legal formalities
that take protective actions. No contest
clauses, can be used to deter a legal challenge. Periodic updates to your Will can
help to establish your wishes and intent. In some states you can petition the
probate court while alive to declare your will valid. A legal professional can
assist you with preparing an effective will.
A Codicil is the
part of your will that will provide instruction for your final wishes. It will
provide directions for your final arrangements. You can leave details on burial
or cremation; embalming; caskets and urns; headstones or burial markers; your
final ceremony; and paying for funeral arrangements. Often instructions for
minor items like furniture, clothing, and jewelry are documented here. This
could become a problem as many states limit the right to make these
arrangements to the decedent’s immediate family. Your attorney will be familiar
with the estate planning laws of your state to further assist you with final
planning.
Providing for children takes special care where there
is no guarantee that a judge will grant guardianship to the surviving partner; especially
in the case where only one parent is recognized as the legal parent. If that
parent dies, or becomes incapacitated, the other parent is at risk of losing
all rights and contact with the child(ren). One alternative is to name the
surviving partner the guardian of the child’s estate. This will permit the
surviving partner to maintain contact in the event that he loses guardianship.
Probate is
the court process of settling your estate. Probate is often a long and
expensive process which rarely benefits the estate. State law determines who
will receive your property. Unless your partner is your legal spouse or is
recognized under state law, state statues do not include your partner.
Avoiding probate may be more complicated for same sex
couples because they cannot take advantage of marriage laws that allow property
to pass to spouses without probate. There are however estate planning tools
that can be used to minimize the effect.
One strategy may be to pass property via contract law. Contract law is based on an agreement
between two parties of sound mind, and of legal age. Beneficiary designations,
Transfer on Death (TOD), Living Trust, Durable Power of Attorney, and Joint
Ownership are all examples of legal transfer of property and or rights via
contract.
1.
Beneficiary
Designations can be made of insurance policies, investment such as
annuities, qualified accounts (these can be tricky if you were married
previously – check with an attorney), and brokerage accounts. An attorney can
help you understand State Law, and your financial planner can assist you with
understanding the various investment vehicles.
2.
Joint
Ownership is a contract that is often used in real property. It will create
an immediate transfer of property upon death to the surviving owner. Some State
laws permit Joint Tenants with Rights of Survivorship (JTWROS). Check with your
state regarding this option.
3.
Annuities,
Qualified Accounts (IRA, ROTH, 401K, 403B, 457), deeds, and insurance
policies permit transfers via beneficiary designation.
a.
The rules
for inheriting an IRA or 401K plan are different for spouses and non-spouse
beneficiaries. Because the IRS does not recognize same-sex partnerships,
non-spouse inheritance rules will be followed.
b.
When an
IRA is transferred to your partner, he/she will have to begin withdrawing
required minimum distributions from the plan beginning the year after death.
Until the beginning of 2010, non spouse beneficiaries had to declare it all as
income when inherited and pay the applicable tax.
c.
Beginning
January 1, 2010, non-spouse beneficiaries can roll the plan into an inherited
IRA. They will still be required to take the minimum distributions, but are no
longer subject to the upfront tax.
4.
Bank accounts, deeds, and some investment
accounts can use transfer upon death (TOD) clauses so that assets immediately
transfer freeing up assets that can be used to pay immediate funeral expenses
after death.
5.
Trusts are key estate planning tools that are
very helpful. Trust may not get around estate tax issues, but it is a private
arrangement that is more difficult than a will to overturn. There are many
types of trust and each has different rules. Consult with your attorney and
financial planner when setting these up.
6.
Living Trust are legal vehicles that
permit you to transfer assets privately to your partner naming him/her the
trustee.
Insurance takes on
many forms: life, accident, disability, health, automobile, home owners,
renters, long term care, etc. Are you aware that your homeowners insurance does
not cover your partner if his/her name is not on the deed? (Solution: Renters
insurance) Lifetime Financial Group will assist you with insurance decisions,
planning and analysis.
Healthcare
Concerns are another aspect of your estate that same sex couples should
not overlook. Healthcare directive
are a vital aspect of a same sex couples estate plan because it provides clear
and legal instruction to healthcare professions of your wishes without any
speculation about the legality of the couple’s relationship. Without these,
your partner may not have any legal authority to make decisions or even visit
you while in the hospital.
1.
Healthcare Power of Attorney names a
person responsible for making healthcare decisions for you in case you lose
capacity. It makes your partner the preferred decision maker. Without it, the
hospital might instead turn to biological family relatives.
2.
HIPPA authorization gives your partner
access to your medical information and records.
3.
Durable
Power of Attorney names someone to take care of your finances in case
you cannot do it yourself. Note: The durable power of attorney ends once the
person who granted it ends. In other words, when your partner is deceased, the
durable power ends. So it is important
to name an executor of your estate to spring into action once you are deceased.
4.
Executor of Estate will execute your
final wishes and settle your estate.
Estate Taxes
are another matter to consider. In 2013, only estates larger than $5.25 million
will pay federal estate taxes. Your state might have its own estate tax law.
Check with your accountant to see what impact it will have on your estate plan.
Although most people do not have to worry about estate taxes.
Heterosexual married couples can rely on the federal marriage
law that permits couples to pass property to your spouse tax free. Same sex
couples cannot take advantage of this law because the federal government does
not recognize same sex marriage even if it is legal in their state.
Same sex couples have no rights under intestacy laws and
they do not get the unlimited estate tax marital deduction which could result
in a death tax of up to 50%. The surviving same sex partner will receive
nothing from his/her partner upon the death without careful planning. Family
resistance must be a consideration so the estate plan must be constructed to
withstand any potential challenges.
A qualified tax advisor, attorney and financial advisor will
help you create an estate plan that is ideal for you! It is best to get sound
legal advice before making any decisions.
Keep in mind that estate planning is about what you want
while you are alive – not just after you are dead. It is more than deciding who
gets your stuff after you die.
Sources:
1.
6 Estate Planning Issues for Gay and Lesbian
Couples, http://www.nolo.com/legal-encyclopedia/six-key-estate-planning-issues-gay-lesbian-couples
2.
Unique Estate Planning Issues for Same Sex
Couples or Unmarried Couples, Harlan S. Louis and Mary Jo Hudson
3.
Estate Planning Issues for Gay and Lesbian
Couples, Jaon M. Burda, JD
4.
Estate Planning for Same Sex Couples, Joan M.
Burda, http://www.americanbar.org/publications/solo_newsletter_home/estateplanning.....
5.
The Estate Planning Tips for Same-Sex Couples, http://www.investopedia.com/financial-edge/0911/top-estate-planning-tips-for-same-sewx-couples
© Carmen Coleman, President and CEO
Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300
30 W. Broad Street, Suite 300
Rochester, NY 14614
(585)325-2525
Carmen
Coleman, MBA, CRPC™ is the owner of Lifetime
Financial Group. She is a financial planner and insurance consultant. http://www.lifetimefinancialnews.com
