Life Partner and LGBT
Alternative Lifestyles and Estate Plans
People with alternate lifestyles have abundant reasons to properly plan their estates. The reasons have nothing to do with gender or sexual preference, but rather the legal significance of your relationships.
In most states, spouses, parents, children, siblings, nephews, nieces and even 2nd cousins all have some degree of legal relationship that is greater than a “life partner”. The U.S. government does not recognize life partners.
At the present time, marriages or legal unions by persons of the same gender are recognized by Massachusetts, California, Connecticut, Hawaii, Maine, New Hampshire, New Jersey, Oregon, Vermont, Washington and Washington D.C. The degree to which legally binding relationships in those jurisdictions are recognized elsewhere varies greatly and is complicated in the extreme.
Non-married straight couples who are life partners also lack legally recognized relationships in most jurisdictions. One common myth is that couples of the opposite gender who live together for 7 years become common law spouses to each other. Not true. “Common law marriage” is recognized in relatively few states, and where it is accepted, requires at least:
- two people capable of marriage;
- living together a specified period of time;
- holding themselves out to others as being a married couple (determined by such factors as sharing a last name, filing taxes jointly and having an “exclusive relationship”).
Fiduciaries and Same-Sex Unions
Approximately the same number of jurisdictions allows for common law marriage as for same-sex legal unions and marriages, but there are only 2 overlaps: Washington D.C. and (for inheritance purposes) New Hampshire.
The absence of any legally recognized relationship for a life partner manifests itself in four broad strains with regard to estate planning:
- The selection of fiduciaries.
- Determining your intestate beneficiaries, state by state.
- U.S. federal estate tax law deprives you and your partner of the unlimited marital deduction.
- U.S. federal tax law denies the opportunity of an IRA spousal rollover.
What are Fiduciaries?
Fiduciaries are persons or companies who act on your behalf when you die or become incapacitated. They are obligated to act in your best interest. That means they are prohibited from self-dealing. Planning your estate includes picking your own fiduciaries. Without the right documents, they are selected by someone else, often the court. Fiduciaries include:
- A personal representative for your probate estate when you die. The personal representative collects your assets, pays your bills and distributes the balance to your beneficiaries. If you don’t want the court to pick your personal representative, write a will to select an executor and establish that control. Better yet, put assets into a revocable living trust and select a future trustee to handle your financial matters without court involvement.
- A guardian over your person if you become incapacitated. A guardian makes health care and other personal decisions for you, including where you live. A health care power of attorney enables you to select an agent (a/k/a proxy) who will make intimate decisions for you if and when you are unable to communicate about such matters.
- A guardian over your estate to take care of your finances upon incapacity. A power of attorney for property allows you to appoint someone to control your assets if and when you become incompetent. A revocable living trust may also serve this purpose with regard to assets transferred into the trust during your lifetime.
For all of these roles, you can control the fiduciary selection process. If you want your life partner to be the one who takes over upon your incapacity or death, plan your estate. Once you die or become incapacitated, the decisions about who will act on your behalf are made by someone else.
Beneficiaries in Same-Sex Unions
Beneficiaries are the persons who inherit from you. Assets owned in joint tenancy go to a surviving joint tenant upon your death. Likewise, if there is a beneficiary designation on file with the banks or other financial organizations that hold your assets, then your assets go to such beneficiaries when you die. Other “probate” assets that you own outright (not in trust), go according to your will, if you have one, otherwise to your “intestate” heirs. Since a life partner is generally not considered to be related to you, he/she is not a beneficiary unless you make him/her one via proper documentation.
Tax Considerations
The Unlimited Marital Deduction allows spouses to make or receive lifetime gifts of any size with no gift tax or reporting requirement. If the spouse who is receiving the gift is not a citizen, then only gifts less than $128,000 (in 2008) can be made annually without the necessity of filing a gift tax return. Filing a gift tax return depletes your applicable exclusion amount (currently $2 million per person) and triggers a gift tax if the amount exceeds $1 million.
If a U.S. citizen inherits assets from a spouse, then the inheritance is not subject to estate tax, but must be reported if it is in excess of the applicable exclusion amount. If the spouse receiving the gift is a U.S. citizen, then the gift is not subject to estate tax, provided that the survivor gets at least all of the income. If it’s an unrestricted gift, then there is simply no estate tax no matter how much is being transferred.
If the inheriting spouse is not a U.S. citizen, then if the bequest is in excess of the applicable exclusion amount, there will be an estate tax just as there would be for any non-spouse beneficiary. Making the transfer to the non-citizen spouse subject to a Qualified Domestic Trust postpones any estate tax until the survivor dies. If your estate exceeds the applicable exclusion amount, then upon your death the excess will be subject to estate taxes unless:
- It is being distributed outright to a spouse who is a U.S. citizen;
- It is being distributed in a qualifying trust to a spouse, whether or not the spouse is a U.S. citizen;
- It is being distributed to qualifying not-for-profit entities.
- Distributions to a life partner who is not a spouse do not qualify for an unlimited exclusion.
IRA Rollovers
IRA Rollover Option. Only a spouse can “rollover” your IRA when you die. A rollover allows a surviving spouse to treat an inherited IRA as if he/she was the original owner. He/she doesn’t have to take a required minimum distribution (RMD) unless he/she is over 70 ½. A life partner to whom you are not married must take an RMD based upon his/her age.
Types of Trusts We Establish:
- Revocable/Irrevocable Trust
- Irrevocable Life Insurance Trust
- Supplemental Special Needs Trust
- Generation Skipping Trust
- Charitable Trusts
- Credit Shelter/Applicable Exclusion Amount Shelter Trust
- Pet Trust
- Estate Freeze Trust
- Qualified Personal Residence Trust (QPRT)
- Qualified Domestic Trust
- Life Partner and LGBT
