Planning for Same Sex, Unmarried, LGBT Couples – Introduction

Introduction to Planning for Unmarried and Same Sex Couples

October 10, 2011

Money Matters Radio – Estate Planning Q&A with Gary Goldberg

By: Martin M. Shenkman, Esq.

Introduction/Overview:

There are a tremendous number of unmarried couples and same sex couples. What general planning steps should they consider? Let’s leave aside issues that are state specific and focus on general planning.

Aren’t many of the basic steps everyone should take similar for unmarried and gay couples?

Yes, the basics are the same as for married couples. Unmarried or same sex couples need all the same core documents: powers of attorney to manage assets if disabled, living wills and health proxies to assure medical decisions are made the way they want, and wills to assure that their assets are distributed in the manner they desire.

But even these core documents must be tailored to address the realities the same sex or unmarried couple faces. How does planning for them really differ from married couples?

It’s huge. Marriage creates clear and known legal and tax benefits to both husband and wife. Most state laws do not provide the same rights and privileges for same-sex couples as for married couples. Gay and lesbian couples do not get the same concrete tax, inheritance, and employment benefits that a marriage provides. So these couples must create the arrangements they want through the use of tailored legal contracts and estate planning documents. We’ll talk about a key document, the living together agreement, in 3 weeks as part of the third installment in this series.

Carefully plan the possible consequences of changes in state law if you move to a new state where the rules might differ. For LGBT couples, Federal Defense Of Marriage Act (“DOMA”) can wreak havoc.Your marriage may be legal in one state, but the DOMA could cause it not to be recognized in the new state you move to if that state itself doesn’t recognize the relationship. As a result, if a LGBT couple moves to a new state, it may be essential that they revise their planning and documents to endeavor to fulfill their goals in that new state.

What about state laws that permit gay marriage or civil unions?

We’re going to avoid the specifics of any state’s laws and speak more generically. Some of the differences and challenges may be mitigated if the couple is married under a state law that permits marriage between same sex couples, if they registered as domestic partners, or members of a civil union under a state that permits that. But, regardless of what state law provides, the documents and planning should address the realities the couple faces. Most states still do not afford unmarried couple, whether or not same sex, the protections that are afforded a married couple. As a result of this the documents should make it clear that the partner should be treated no different than a spouse for purposes of medical decision making or hospital visitation. Many of the provisions in typical legal documents, like wills and powers of attorney, have to be thought through more carefully. In a nuclear family, providing that assets should be distributed to “heirs at law” might work. It might result in assets passing to children and further descendants, which might be what the couple wants. But if the same sex couple does not have children, they cannot rely on what in other circumstances might be standard language. The bottom line is that in spite of significant positive legislative developments in some states, there remains many challenges and the legal environment these couples face is constantly changing and evolving.

What about tax implications?

The tax laws have always been biased against unmarried or same sex couples. They cannot file a joint federal income tax return. There is no marital deduction for gift or estate tax purposes. We’ll discuss this next week.

What other documents might a gay or lesbian couple wish to handle differently?

• Will: A will provides for the disposition of assets. The problem is that the probate process can be public and hostile family members (even if they were not hostile during the relationship while their child/partner was alive) could challenge will. What the couple might consider doing is periodically revising their wills making minor changes (e.g. $1,000 to several different charities, naming an additional successor executor) several months (even a year) after the first will. This will help demonstrate that your general method of distributing assets (e.g. to your partner) is in fact your objective.
• Revocable Living Trust: This is a trust (a contract) which can act as a substitute for your will at death and govern the management of assets during disability. A living trust can be used to hold and ultimately distribute your assets to your partner. It can (but will not always) avoid publicity and probate. This is because assets owned by your trust can pass as the trust agreement provides on death without going through the probate process. This might enable you to better provide for your partner with less angst from surviving family members. However, this is not foolproof. Trusts can be challenged. And trusts require a higher level of competence to sign then a will (which could make a challenge more difficult to defend if your health and in particular, your competency, were in question when you signed). Also, the courts sometimes require that terms of a living trust be disclosed, especially where a will pours into that trust. You might consider not using the traditional approach of a pour over will (a will that says any assets you have should be paid to your living trust and distributed as directed by that trust). Instead, have the will distribute whatever assets are not in the trust without making any mention of the trust.
• Irrevocable Life Insurance Trust: Unmarried couples are not entitled to the unlimited gift or estate tax marital deduction. Therefore, if your estate is large, you may benefit from the purchase of life insurance to pay some portion or all of the estate tax. To prevent the insurance from being taxable it should be held by a trust. Since the trust is irrevocable (cannot be changed once established) it may withstand or avoid the type of challenge that could affect your will.