What if you were injured unexpectedly and your loved one wasn’t allowed to make essential decisions on your behalf? What if that person wasn’t even allowed to see you? Can you imagine passing on and having your lifelong partner left with nothing? Unfortunately, these scenarios happen all too often to gay and lesbian couples. Because the laws of most states do not recognize same-sex partners as families, it is particularly important for gay and lesbian couples to carefully consider their estate planning strategy.
A properly drafted estate plan is essential for managing your assets and insuring your needs will be met now and in the future. Many aspects of estate law are based on biological relationships and marital bonds. A marriage grants concrete employment and tax and legal benefits to both husband and wife; however, marriages are state-sanctioned contracts and many states do not allow gay and lesbian couples to marry. Life partners that aren’t able to marry need to take special steps to ensure their rights and wishes are protected. Same-sex couples must be proactive about developing comprehensive legal plans detailing their personal choices about life and death. When you work with your attorney, consider the following benefits.
Last will and testament
When an individual dies, their survivors typically submit their will to probate court. Probate involves a judge’s review of the will and the efforts of the executor (appointed by the decedent) to distribute property in accordance with the terms of the will. If the decedent does not have a will, the court will appoint a person to receive all claims against the estate, pay creditors, and then distribute the rest of the property in accordance with the intestate laws of the state. That court-appointed person may not be the decedent’s partner or someone who recognizes the partner’s status. And intestate laws are not likely to do so, either.
Living (or Revocable Living) Trust
A revocable living trust allows you to transfer ownership of your assets to a trust, yet retain complete control over the funds. When you die, the appointed trustee distributes the assets in accordance with the terms of the trust. In most states, you can name your partner as both trustee and beneficiary. Living trusts are appealing to same-sex couples because the assets are held outside a will, thus typically avoiding probate. Additionally, living trusts are generally not public — making them more difficult to contest.
Durable Power of Attorney (DPA)
A DPA can be used to grant your partner the authority to handle your affairs and make financial decisions and you decide if it becomes effective immediately or only upon disability. If you do not have a DPA, your partner will have to petition the court to be appointed as your agent — which may be an expensive, time-consuming and distressing process.
Advance Directive
A health care proxy used in conjunction with a living will is referred to as an advance directive. The health care proxy grants your partner the authority to make medical decisions for you if you become incapacitated. A living will outlines the life-prolonging measures you want taken if you become terminally ill or injured.
Retirement benefits
The Defense of Marriage Act denies same-sex couples access to federal benefits and protections including Social Security spousal and survivor benefits. At the state level, same-sex partners may be taxed at a higher rate than legally married partners, meaning that the sale or transfer of a home — often a key source of retirement funds — can hit gay and lesbian families harder.
However, the Pension Protection Act has helped with retirement benefits. Non-spouse beneficiaries are able to roll over assets inherited from a qualified retirement plan into an IRA, avoiding taxes until the assets are withdrawn.
Funeral arrangements
Make sure you communicate your funeral wishes and designate someone to carry out your requests. Developing legal documents that clearly define your desires can protect those who are grieving from being shut out of the process.
Creating and maintaining a comprehensive estate plan may be complicated, but it is essential for making sure your wishes are carried out. If you do not plan your estate, you lose the opportunity to protect your partner and your family. For guidance on developing a plan, consult a professional financial planner who is experienced in both estate planning strategies and the local and federal laws concerning same-sex couples. He or she can outline your options and make recommendations on strategies appropriate for your individual situation.
This information is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor.
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