Estate Planning for Non-Traditional Families

In estate planning, the need for personalized services cannot be over-emphasized, and it is important to feel comfortable with your attorney. Estate planning deals with deeply personal and private matters. Honesty and frankness is absolutely necessary in the context of making important decisions in estate planning. Robert S. Hark has been active in the LGBT community for many years and is well attuned to the needs of the community. Especially here in Maine, where the State level taxes are out-of-sync with the Federal tax structure, an awareness of the consequences of estate planning decisions is extremely important.

Members of the LGBT community will find a welcome and supportive atmosphere at Troubh Heisler, and a clear understanding of the challenges faced by the individual members of the community in making important personal and financial decisions.

Even in an era that has seen tremendous advances by the LGBT community, estate planning continues to pose challenges that call for creative approaches that may be totally unnecessary in the hetero community. Some of these challenges are described here.

FEDERAL REFUSAL TO RECOGNIZE SAME-SEX MARRIAGES OR DOMESTIC PARTNERSHIPS AS EQUIVALENT TO MARRIAGE.

The Federal so-called Defense of Marriage Act prohibits governments from according same-sex marriage or domestic partnerships the same status as is accorded to heterosexual marriage. This means that even if a State chooses to recognize same-sex marriage or accord same-sex couples in a domestic partnership equivalent legal status under state laws, the Federal government cannot recognize the efficacy of these unions. The consequences of this extend beyond estate and income tax issues, and extend to social security and Medicaid benefits.

ESTATE TAX CHALLENGES

Heterosexual couples can leave their estates to their surviving spouses free of federal estate tax; same-sex couples, on the other hand may have to pay estate taxes at substantial rates, drastically reducing the money that is left to care for their spouse and children. Although planning cannot entirely replicate the benefits of hetero married couples, it can often significantly ameliorate the consequences of these challenges posed by the current legal status ( or should we say the lack of legal status) of same-sex couples under Federal law.

In planning the estates of hetero married couples, it is typical to make efforts to make maximum use of the gift tax marital deduction available, repositioning assets in the estates of husband and wife. Because there is no gift-tax marital deduction available to same-sex couples, this process requires more effort and more time, usually attempting to make maximum use of the annual gift-tax exclusion – something entirely unnecessary to consider with hetero married couples. By way of example, if a home is titled in the name of one (same-sex) partner, the transfer of the title into both names may have significant tax implications.

With taxable estates it is sometimes useful to create deferred gifting trusts, such as Grantor Retained Income Trusts (“GRIT”s), Qualified Personal Residence Trusts (“QPRT”s), or Grantor Retained Annuity Trusts (“GRAT”s). It should be noted that the IRS Rules for deferred gifting trusts are most restrictive for gifts to “family members,” so that careful attention must be paid to definitions, and their changes from time to time.

INCOME TAX

The inability of same-sex couples to file a joint tax return can cost the family significant dollars every year. These are dollars that – in a hetero household - can be used to support the family, but they are dollars of tax-savings denied to same-sex households. This is one area which planning cannot fix; only Congress can do so. That said, depending upon the family structure, the inclusion of children, and whether one or both partners are employed, some opportunities may present themselves by having one or both partners file as “head of household.”

COUPLES AND INDIVIDUALS WITHOUT CHILDREN

It is often children who end up acting under health care powers-of-attorney, and/or as the people chosen to manage their parents’ financial affairs under durable powers-of-attorney, at a point when their parents become unable to function independently. For individuals or couples who have no children, however, choosing people to fill these roles can become more challenging, especially as close friends approach an age when they might not be capable of being relied upon. Leaving these decisions to a court may have unpleasant consequences, and can be needlessly expensive. For this reason, advanced planning and thoughtful guidance is a necessity.

CHOOSING YOUR BENEFICIARIES

Absent a designation of beneficiaries by will or trust, your estate will vest in your heirs-at-law, which may result in the assets going to collateral relatives. If you have children, the default situation is for the children (or grandchildren by deceased children) to inherit equally; thus, attention has to be paid to assuring that your chosen beneficiaries will inherit. Partners without children may have different ideas as to what family, friends or charitable organizations ought to share in their estates. If all of your assets devolve upon your surviving partner, it may be that partner who will determine the ultimate beneficiaries, after your surviving partner dies.

INVOLVEMENT BY THE PROBATE COURT

Among the many goals of estate planning is to minimize the cost of administering your estate, and this usually means doing sufficient planning to minimize the involvement of the court. In addition, the judges in the Maine Probate Court may not have a good understanding of the nature of the relationships between LGBT partners. You may want to have your estate resources used to keep you in your own home, even though a court may conclude otherwise.

TRANSGENDER ISSUES

Within the transgendered community the likelihood of having sensitive and thoughtful decisions made by biological family may pose an even greater challenge. Having thoughtful and sensitive people to guide you through the planning process is even more important. It is very important that clients in transition, or undergoing medical intervention, have their documents in good order, in order to have their wishes respected.

For more information, contact Robert S. Hark