Last year it was determined by the Supreme Court that state-level bans on same-sex marriage were unconstitutional.   In other words, no matter where in the United States that you live, you now have the same rights as any other couple.  The only hiccup currently is that some counties are denying licenses to same-sex couples (13 counties total) so those same-sex couples wishing to get married in those states would need to travel to a different part of the state to obtain a license.

Marriage equality means it’s time for you to start financial planning with the both of you in mind.  Key benefits now offered to you include social security, federal income taxes, employee health care benefits, retirement and pension plans, and federal estate and gift taxes.  With these benefits comes the responsibility of estate planning.

When planning an estate, most people are interested in:

  • Organizing your personal affairs
  • Accumulating an estate
  • Planning for orderly distribution of your estate (providing for your surviving spouse or other beneficiaries)
  • Strategizing to pass estate efficiently by planning for estate costs and taxes.

With proper planning and a good team of professionals working for you, you will be able to meet your estate planning goals and prevent delays and family friction regarding the distribution of your estate.

Estate planning for same-sex couples, as with everyone, can be complicated depending on what you own, what you owe, what state you live in, and your wishes for after you’re no longer living.  Taking advantage of industry professionals will help immensely.  Regarding your estate planning team, these individuals usually consist of:

  • You and your partner
  • Financial professional
  • Your accountant
  • Estate planning attorney.

A financial professional works in unison with both the accountant and the estate planning attorney to offer appropriate strategies.  An accountant is a professional whose business is to be on top of current tax laws, which are ever-changing.  He or she can also help you calculate the value of your estate.  The estate planning attorney can help you implement certain estate planning tools, such as a will or a trust.

What’s included in your estate?

Oftentimes people assume estate planning is only for the wealthy.  However, the word “estate” simply refers to whatever you own, whether that’s a mansion worth millions or just your grandmother’s antique tea set.  Everything you own, or retain certain interests in, is included in your taxable estate.  This includes:

  • Property in your name
  • Your interest in joint property
  • Life insurance you own
  • IRAs and retirement plans

It’s also important to take into consideration your final expenses when planning with your advisors. They can help reduce the size of your estate before assets pass to your beneficiaries.  These can include:

  • Debts
  • Funeral bills
  • Medical bills
  • Probate expenses.

How does property get distributed at death?

There are three ways that property can pass at your death:

Will – Property that you own in your own name does not automatically “know where to go” when you die.  A properly executed will controls how and to whom this property passes at your death.  If you do not have a will, the intestacy laws of each state dictate how this type of property passes at your death.  Your interest in property that you own with someone as a “tenants in common” also passes under your will.

Contract – means that the property involves some sort of contract where you have named a beneficiary, such as a life insurance policy, an annuity or a retirement plan.  Your will has no control over the distribution of this type of property.

Operation of Law – means that the piece of property will automatically be distributed to a survivor, such as a house owned between individuals or a joint bank account.  Do keep in mind that some laws vary by state.

It’s important to not only know what you have, but to also know how you own it so that you can understand how it will pass at your death.  Periodically review any ownership documents you may have because your wishes may have changed since creating these forms.

What about health and financial decision-making?

There are two important legal documents to familiarize yourself with: a health care directive and power of attorney.

A health care directive is generally a written statement that provides direction on how certain medical decisions are to be made.  The health care directive allows you to state your choices for certain health care measures or to name someone to make those choices, if you become unable to make decisions about your medical care.  Health care directives can be a generic term for the combination of a living will and a power of attorney for health care.  In many states a living will and a power of attorney for health care are combined into a single document.

Without valid health care directives wherein you and your partner name each other as your respective agents, you may not have control over medical decisions made concerning your partner if he or she were to have health problems and could not make those decisions for him or herself.

A power of attorney for health care is a document in which a person (principal) appoints someone to be their authorized agent for purposes of health care decisions.  A power of attorney for health care is a more comprehensive and flexible document than a living will.  It can cover any health care decision and is not limited to terminal illness or end of life situations.

A power of attorney for property and finances is a document in which you can appoint someone to be your authorized agent for purposes of property and financial decisions.  It allows the agent or attorney-in-fact to manage business and personal affairs of the principal.  These powers of attorney can include specific powers and/or general powers.  For example, if you were to become incapacitated and your POA was durable, your partner could manage your personal affairs including paying your bills, making gifts, and transferring assets.

These documents may need to be drafted using specific statutory language.  Some states may require a specific format or specific wording in the document.  Be sure to work closely with your attorney.

What about real estate?

Married same-sex couples should not encounter any issues around real estate.  However, non-married partners might.  Consider the following ideas if you are unmarried, but want to own a home with your partner.

How you title your home is very important.  If you and your partner title your home as “Joint Tenancy with Rights of Survivorship,” should one of you die, the survivor becomes 100% owner of the home.  If a home, or other asset, isn’t titled correctly, the effects can be devastating and unintended.  Your partner may not end up as the legal owner of the home.  It’s important to speak with an attorney about how your assets should be titled and how a trust can help in order to keep your decisions your own – even after you’re gone.

Unmarried couples need to also be aware of potential gift tax issues if they “add” a partner to the title of a home.

If both you and your partner own your home and you both contribute to the carrying costs (including mortgage) always pay the mortgage with two checks.  For estate tax planning purposes, such an action can be most valuable as it will allow a surviving partner to prove his or her portion of ownership in the home, making the estate valuation of the first partner to die more equitable, and may also save costly estate tax dollars.  Another reason to pay the mortgage with two checks is in the event partners separate.  Again, careful record keeping can provide valuable documentation.

Here is another idea is for those of you who are the sole owners of a home that you share with your partner.  Let’s say that, in the event of your death, you’d like your partner to continue living in the home but you want your child or other heir to eventually own the home.  One way to do this is with a life estate in favor of your partner.  Another way is through a trust that will stipulate that your surviving partner can stay in the home for X number of years or until his or her death.  At the stipulated time, your heirs will be given ownership of the home.

What about retirement benefits?

Married same sex couples are now entitled to the same retirement plan benefits that heterosexual couples are entitled to.  However, if you are not legally married, then many benefits are not available.  For example, while you can name your non-spouse partner as the beneficiary of your IRA or 401(k), your partner will not be eligible for favorable tax treatment in terms of distributions upon your death.

Would a trust be useful?

One of the reasons to consider setting up a trust is to give you additional control over how and when your beneficiaries receive your assets.  Some people think of a trust as a document, but I would like you to think of it as a container designed to hold money and other assets for your beneficiaries.  You decide what you are going to put into the trust, you decide who gets what is in the trust and you decide how it is distributed.

A properly structured trust can help ensure that your wishes are carried out the way you intend them to be.  A trust should be drafted by an attorney with experience dealing with estate planning and trusts.  There can be gift and estate tax consequences to the various types of trusts used in estate planning.  Additionally, not all trusts provide estate tax benefits.  For example, a revocable trust does not provide any estate tax benefit as the assets are still included in the decedent’s taxable estate.  However, a revocable trust does avoid probate.  An estate planning attorney can work with you to help determine if a trust is an appropriate tool for your situation and can help you to establish one.


Related Posts:

A Basic Estate Planning Checklist

What is a Trust?

Financial Planning for Same-Sex Couples

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