Marriage equality in the U.S. has helped level the same-sex marriage playing field. Even with this giant leap forward, there remain many legal inconsistencies from state to state for those who are lesbian, gay, bisexual, transgender, or queer (LGBTQ+).
These inconsistencies create an essential need for LGBTQ financial planning and estate planning. And while the barrier to marriage has been lifted, 42% of same-sex households remain unmarried several years later. Many LBGTQ+ Americans pass away without a will, and the need for trust and estate planning becomes an even more significant point of consideration within LGBTQ+ planning.
The decision to marry your partner is a personal choice, regardless of the law. However, this decision does affect both of your financial lives, especially if you choose not to get married. There is good news! To ensure your intentions are being followed, below are some estate planning tools and strategies to help protect yourself and your partner’s interests:
You and your partner should each be drafting a last will and testament. You can designate your partner as the beneficiary of your financial assets or guardian and caregiver for your child if desired. You will need to provide a set of reasons in the document to make your decisions harder to contest in court. It may be imperative if your partner is not your child’s legal parent, the child is from a prior opposite-sex relationship, and if the child is adopted. However, keep in mind that a will must go through probate court and become a public document when you pass away.
Revocable Living Trusts
Revocable living trusts can accomplish many of the same objectives as a will while also providing more excellent protection, control, and privacy. These trusts allow you to transfer ownership of your assets to the trust itself, with named beneficiaries in the event of your death. While you are alive, you remain in control of the assets held in the trust as the trustee. Other benefits of a revocable living trust are that it avoids the probate process entirely. Your wishes and bequests remain private to outsiders. Certain people around you, such as disagreeable relatives, are less likely to challenge a revocable living trust than a will successfully. Why? A revocable living trust is a trust you put into place and maintain while alive. Lastly, you can retain the assets in the trust for your beneficiaries after you pass away; the assets do not have to be immediately distributed from the trust, as is the case with a will.
This unique Will can be a valuable tool in conjunction with a revocable living trust. A pour-over Will can automatically allocate, or “pour-over,” any remaining assets not yet held in trust into your revocable living trust upon your death. These wills are usually still subject to probate. It can help ensure that you capture any remaining assets into the trust after your death so that they can be managed according to your wishes.
Unlike a revocable living trust, an irrevocable trust also protects assets in your estate for any named beneficiary, such as your partner. These trusts also remove those assets held in the trust from your and your partner’s estates. This can help prevent additional taxation of these assets. However, these potential benefits come with important considerations: The trust is irrevocable, which means once it is created, it is challenging, if not impossible, to modify. Therefore, you must plan and be confident in your decision. You should consult your financial advisor and one of our attorneys about your choices before committing to an irrevocable trust.
Health Care Directives
LGBTQ+ couples may also want to consider drafting legal health care directives for any potential medical emergencies you or your partner may have. If you are not married, unfortunately, the default designee may be a blood relative you may not want in control of the decisions on your health. If you are married, the following directives ensure that the health care provider will follow your wishes regardless of their personal beliefs about your relationship. A healthcare power of attorney designates a decision-maker in charge of your healthcare if you cannot make decisions yourself. With both legal health care directives in place, you and your partner can protect your medical wishes.
Financial Power of Attorney
To assist in managing your financial affairs, a power of attorney is needed if you cannot manage. Regardless of your marital status, financial institutions will not grant your partner access to accounts where they are not the owner. Examples include personal bank accounts, investment accounts, and retirement accounts.
With many options to care for yourself and your partner in the life you live, here are some tips to get you started:
Tip 1: Legally naming your partner or spouse is essential
Even if you’re legally married, if you want your partner or spouse to have the authority to make decisions for you, whether financial or medical, you should specifically name them in one of the many Estate Planning documents out there (mentioned above). Essential for LGBTQ+ couples, the Healthcare Insurance Portability and Accountability Act of 1996 (HIPAA) is a privacy authorization form that gives doctors and healthcare providers consent to discuss and disclose your health condition and records with the person you designate.
Tip 2: Same-sex marriage, domestic partnership, and civil unions are not the same
Unfortunately, the federal government still only recognizes “traditional” marriage (between a man and a woman). Because of this, guaranteed benefits and rights can differ depending on your local state laws. Be sure you understand and know what you and your partner are entitled to under the law. This is especially important if you’re legally married in one state but move to another where LGBTQ+ marriage is not legal. Updating your Estate Plan to reflect the laws of your new home may be necessary.
Tip 3: Appoint Guardianship to ensure your children go to your partner
If you and your partner share children, this may be one of the essential components that Estate Planning for LGBTQ+ couples must address. It’s not uncommon for courts to step in and make decisions about guardianship for children. And often, the family of origin or another biological parent will be given preference. If you share a child, you can avoid misinterpretations about who should step in by formally nominating your spouse or partner to be the legal guardian of any children if you pass away or become incapacitated.
Tip 4: Failing to plan can be planning to fail for same-sex couples
Unfortunately, suppose you live in a state that does not recognize same-sex relationships or partnerships. In that case, you will have died intestate if you pass away without proper Estate Planning documents. If you pass away, your partner may not be legally entitled to anything. This could include property, children, bank accounts, retirement accounts, and other assets. The only way to fully ensure your family is protected is by having an Estate Plan clearly defined.
Tip 5: Take Advantage of the Unlimited Marital Exemption
Before the Supreme Court ruling legalizing same-sex marriage, if one member of a couple planned on leaving a legacy to a partner, many couples would purchase a life insurance policy to help cover estate taxes. Same-sex couples can now enjoy the unlimited marital deduction for federal estate and gift taxes, which many heterosexual married couples have enjoyed incredible financial success for decades. Therefore, partners can now generally leave unlimited assets to their surviving spouse without triggering a federal estate tax if both are U.S. citizens. By taking advantage of the marital deduction and rolling over assets, same-sex couples can revisit their financial and estate plans to gain considerable liquidity.
Tip 6: Consider Real Estate Ownership
Same-sex couples should also review real estate documents, especially for property purchased before marriage equality, to ensure that the owner is listed according to the couple’s wishes. Tenants in Common gives both individuals a share in the ownership of the property (house) but allows everyone to Will their shares to someone else in the event of their death. Joint Tenants with Rights of Survivorship signifies that both individuals are owners; if one individual passes away, the other will automatically gain sole ownership. The state you live in may also dictate how you want to title your assets.
Understanding what challenges may arise and what protection is available is essential for LGBTQ+ couples. Without a proper legal estate plan, you may not be guaranteed anything. With Trust & Will, you can create a plan equipped to protect you, your legacy, and your loved ones. Contact us today for a free consultation.