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Estate planning for non-traditional or same-sex couples

When American Airlines flight attendant Jeff Collman died at the World Trade Center on September 11, 2001; the last thing on his partner's mind was that Collman didn't have a will. But as his partner has since discovered, even though Collman had few assets, the lack of a will has complicated such seemingly simple matters as deciding which of Collman's family members and friends would receive heirlooms and personal items with sentimental value.

"I had no idea how critically important it is to have a will," Bradkowski says. "I know people don't want to talk about what happens when they die, but not doing that can put the people you leave behind in a difficult and awkward place."

Estate tax laws may vary from state to state but in some states the laws for non traditional and same sex families are very unfavorable, and the stakes are high. While For traditional married couples, the surviving partner receives an unlimited marital deduction; Same sex couples estate tax rates can range from to 37-55% for total taxable estates over $675,000.

Non-traditional and same sex partners may face other complications. For instance, the children may have only one of the partners as a legal parent. Many gay or lesbian life partners may wish to choose different ultimate beneficiaries.

Without proper estate planning, you will not be able to provide for your loved ones. Laws that protect and pertain to married couples don't apply to you, so you have to replace them with specific language in wills, trusts, etc. Without proper protection, your surviving partner could be left out on the streets even though you both lived together in the same house for 25 years, made joint house and utility payments, etc.

Don't take anything for granted. It is possible that your partner will be left out of making financial and medical decisions if you become seriously ill or incapacitated without taking steps to protect your relationship. Consult a financial planner, tax attorney or estate attorney who deals with same-sex or non-traditional couples. They can help you and your partner protect your assets and wishes. Know your rights and know the law.

Family Limited Partnership

A Family Limited Partnership (FLP) is a popular estate-planning tool for non-traditional and same sex couples. The Family Limited Partnership is an enormously successful device to transfer wealth while escaping estate tax on the post-transfer appreciation of the property, and while also allowing the donor to retain control over the property. (there is no requirement that Family Limited Partnership partners be family members.) In 1990 Congress sought to discourage its use to transfer wealth between family members by making it more difficult to take discounts when property is given to family members. However, these rules don't apply to same sex families. Family Limited Partnerships work for non-traditional and same sex families by taking advantage of valuation freezes and discounting techniques in ways that traditional families can't.

for starter page on Family Partnerships click here
for more detailed info on Family Limited Partnerships click here

Make a Will

Consider creating a living will. A living will states your wishes regarding medical actions to keep you alive.

Make a will if you want to leave certain property to your partner. Without a will, your partner probably has no legal right to inherit any part of your estate. If you die without a will, your estate will automatically pass to your next of kin, through the probate process according to the laws of your state. And while a will can be challenged, courts usually respect the terms of a properly executed will. If you have children, you can also add a clause to your will naming your partner as their guardian. If you don't have a will the distribution of your estate will be overseen by a probate court. That process is not a private process but a matter of public record, open to everyone.

Durable Power of Attorney

Prepare a durable power of attorney. If you become ill or injured and are unable to make decisions about your medical care, your partner probably won't be allowed the legal ability to make those decisions. Instead, your family members, or even the doctor will make those medical decisions. A durable power of attorney for health care designates an individual to make certain the instructions of your living will are carried out naming your partner as your representative. There is also a method of allowing your partner to handle your finances if you are incapable of doing so by preparing another durable power of attorney for financial matters.

Life Insurance

Investigate the use of life insurance to help supplement your partner's retirement. Life insurance can help you provide significant replacement income for your partner. Most policies are owned by the insured, payable to the insured's estate or survivors and therefore are included in the owner's taxable estate. The only problem that might occur is proving insurable interest from a beneficiary standpoint. Policy owners should consider giving policies directly to the beneficiaries or transferring them to an irrevocable trust to avoid a large estate tax bite. If you can't do this, insure that your partner is designated as the beneficiary of your life insurance policy at a minimum.

Living Trust

Set up a living trust. Living trusts provide certain advantages that are not available with other estate planning devices. Technically, living trusts are "revocable inter vivos" trusts. If a trust is "revocable," the person who establishes the trust can change all or any part of the trust, so long as that person is competent. "Inter vivos" is Latin for "during life." Assets owned by living trusts generally are not included as part of the probate process at death.

For more on Living Trusts, Click Here.

Joint Property

Insure that the Title to property you own together is established as joint tenants with right of survivorship (JT/WROS). Whether it is a home, vacation home, even your brokerage account, titling assets under JT/WROS avoids probate, yet does not avoid estate taxes. Avoid improper titling which can frustrate an estate plan because property titled JT/WROS goes to the surviving joint tenant regardless of what a will says; and JT/WROS property gives each owner an equal "undivided interest" in the entire property. For more on Joint Property click here

Domestic Partner Agreement

Establish a domestic partner agreement. This is a written contract, like a will, that is between you and your partner that supports your rights to certain property and clarifies your intentions for the distribution of your property if your relationship ends or if you die.

If your retirement plan permits, name your partner as the beneficiary. You can, in most cases, name each other as beneficiaries of your company 401(k) plan or 403(b) plan or your personal IRA.

Plan to save more money now. You will have to replace the spousal benefits your partner won't receive from Social Security or any defined benefit pension plan you may have.

Prior to making changes at work to reflect any long-standing relationship, make sure you understand what retirement benefits you can expect to receive from one another. Not unlike marriage, your relationship could end before you retire. This might leave one or both of you with inadequate retirement income. It is very important to take care of your needs first and also have a plan for the both of you.

Other strategies that work well for same sex or non-traditional couples include, but are not limited to total return trust, irrevocable life insurance trusts, charitable remainder trusts, qualified personal residence trusts, grantor retained interest trusts, sophisticated and multiple beneficiary designations on retirement plans, Roth IRA conversions, family limited partnerships, gifting, first-to-die life insurance policies, Section 529 plans (qualified state tuition programs) and more. While these techniques were not created for same sex or non-traditional couples, they often solve estate planning issues and maximize assets for both partners and surviving family members. Without the benefits of the unlimited marital deduction and other advantages that traditional married couples enjoy, same sex couples need to seek out solutions that maximize their assets while reducing their taxes.

Please also see our page on Estate Planning (click here) for more ways to protect your loved ones.

NOTE: ALL information contained in this site is for illustration purposes only, and by NO means should be considered individual tax or legal advice under any circumstances whatsoever! This site is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security which may be referenced herein. We suggest that you consult with your financial or tax advisor with regard to your individual situation. This site has been published in the United States for residents of the United States. Persons mentioned in this site may only transact business in states in which they have been properly registered or are exempt from registration. Please review our Privacy Policy.

Lynn R. Siewert, AIMC, CRPS
Pension Consultant |   Branch Manager
CA Insurance License #00B00579
2005 E. Evergreen Blvd
Vancouver, WA 98661
Ph: 360-750-9626

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