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|Estate Planning Considerations for Same-Sex Couples and Unmarried Cohabitants|
|Written by Norton Gappy|
Estate planning is all about control. With an estate plan you can control both financial and non-financial aspects of your estate. At your death you can designate “who gets what and when they get it”. For many people, the most compelling reason for having an estate plan is to make sure their intended beneficiaries receive their estate assets and to make sure certain others do not receive their estate assets. The truth is if you do nothing (i.e. have no estate plan in place at death) your state of residence and the probate court(s) where assets are located will step in and transfer your assets according to a state created will ("intestate succession"). This state created will may distribute your estate to people that were not intended to benefit from your estate. Without an estate plan, you are essentially forfeiting control of your estate. As you will see in this article, this is especially true for same-sex couples and unmarried heterosexual cohabitants (aka "partners").
For each person, estate planning has its own unique purpose. For same-sex couples and unmarried heterosexual cohabitants the purpose of estate planning is usually to make sure their partner's inherit their property and are also entitled to participate in personal medical and burial decision making matters.
A minority of states such as Massachusetts have enacted laws recognizing same-sex marriage. Under these laws, same-sex partners are considered "spouses". However, the majority of states do not recognize same-sex marriages. Click here for a more detailed listing of marital laws and spousal rights by state. In addition, the federal government and federal laws do not consider same-sex partners for heterosexual cohabitants as a “spouse.”
Because the federal government and most states do not recognize same-sex marriages or unmarried cohabitants as "spouses", such partners will have little if any right to receive property at the death of their partner. Below are a few considerations for same-sex partners and unmarried cohabitants to consider when drafting their estate plan:
1. Majority View. As mentioned, most states have banned same-sex marriage and do not recognize unmarried cohabitants as having any property rights toward the deceased's estate.
2. Federal Estate Tax Issues. Federal laws do not recognize the surviving same-sex partner as a surviving spouse for tax purposes. Hence, the estate of the deceased same-sex partner will not be entitled to transfer property and receive an unlimited marital deduction. Losing the marital deduction may cause the estate exposure to estate taxes whereby ultimately reducing the net transferrable estate.
3. Retirement Benefits. Federal ERISA statutes govern retirement benefits. As stated above, federal laws do not recognize same-sex partners as a spouse or surviving spouse. Therefore, the surviving same-sex partner can not rollover the deceased's partner's retirement benefits tax-free. A rollover is a tax-free withdrawal of cash or other assets from one qualified retirement plan or traditional IRA and its reinvestment in another qualified retirement plan or traditional IRA. Amounts rolled over are not included in income but are reported on your tax return as a tax-free rollover for reporting purposes. The owner of the qualified retirement benefits can name anyone as a beneficiary of the benefits, but only a surviving spouse (as defined under federal law) can obtain a tax-free rollover.
4. Transferring Assets at Death. It is essential that each partner has a valid, up-to-date, and properly executed will and living trust. If you die without such documents, state law and the local probate court will determine what will happen to your property. Most states have adopted parts or all of the Uniform Probate Code (UPC). Under the UPC, generally, a surviving same-sex partner is not considered an heir at law and will have to contest the estate in order to make a claim. As you can imagine, contesting the probate court's distribution will be difficult and very costly to the estate which means that the estate will ultimately have fewer assets to transfer once settled.
5. Health Care Power of attorney (aka Patient Advocate Form). Most hospitals allow only family members related by blood or marriage to visit patients in critical care. If you want to designate a same-sex companion with certain medical rights and powers, a patient advocate form and HIPAA release should be included in your estate plan.
As you can see, estate planning for same-sex partners requires consideration of many factors. Contact an experienced estate planning attorney in your area to make sure that your estate planning objectives are being met.
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