Same-Sex Couples Encounter Unique Obstacles in Estate Planning
by Richard B. Schneider, Esq.
Upon death, the absence of planning inevitably results in some avoidable complications, delays and expense. This is true regardless of one’s marital situation. However, the obstacles for same-sex couples who fail to plan are often insurmountable. If an individual dies without a will, the law of intestacy determines the distribution of his or her assets. Each state determines the order of distribution, but generally, the assets will go to the decedent’s legal spouse first, and then to blood relatives – no matter how distant. Even worse, in most states the assets are distributed to the state if the decedent has no living blood relatives. This means that a life partner will not be given the deceased partner’s assets under the law of intestacy.
Planning is the Key
So what can be done to assure that a partner is not left out, and that one’s wishes are respected? The key is to plan for all situations, and plan early.
Under federal law, same-sex couples are not afforded the same estate tax benefits as married couples (the Unlimited Marital Deduction); however, they can use a Revocable Living Trust (RLT) to ensure that the surviving partner is provided for after the first partner’s death. The RLT provides a means to direct the disposition of assets, while avoiding costly probate procedures. Lengthy court proceedings can also be avoided should one party become incapacitated.
In addition to a trust, wills for each partner offer same-sex couples additional security. In an overall estate plan, the will can be drafted to “pour-over” assets that may have been left out into the Revocable Living Trust. In this way, the directions expressed in the trust can govern all assets upon death.
Another dilemma facing same-sex couples arises in the context of funeral arrangements. Unless the couple has executed the proper documentation in advance, family members who are unfamiliar with or intolerant of the relationship may make arrangements contrary to the couple’s wishes. The law in my home state, Oregon, provides for an Agreement for the Disposition of Remains appointing the domestic partner as the one with the authority to make decisions regarding funeral and burial arrangements. However, in the absence of this document, Oregon law gives blood relatives the authority to deal with this matter, not the domestic partner. Other states have similar laws.
Providing for Children’s Guardianship
With the growing prevalence of same-sex couples comes the introduction of alternative families with children. When one or both partners have minor children, and if there is no other natural parent alive, it is imperative that the parent’s wishes for the care of his or her child be legally expressed. In the absence of parental guidance, there is a risk of allowing the court to decide the placement of minor children, possibly contrary to the parent’s wishes. This can be the case where a court is not “friendly” to the surviving partner’s lifestyle. Naming a guardian for minor children in a will may help to avoid this stressful and costly process.
Health Care Planning
Same-sex couples also face the risk of being denied visitation of a partner in the hospital. When one party is unable to communicate his or her healthcare preferences, it is likely that a blood relative will be asked to comment on the patient’s wishes, instead of a domestic partner. Documents typically called a Health Care Power of Attorney and Living Will (in Oregon, they’re combined into pone document called the Advance Directive for Healthcare) can avoid these two impediments. Should one become unable to make his or her wishes known, these documents give clear directions for medical treatment and nominate the partner, as an agent, to act on the other’s behalf in healthcare matters. The documents can also express a desire that a partner be permitted access to the ill partner’s hospital room. It is important to make these documents available to physicians for placement in medical records, and some suggest depositing copies with the nurse’s station, so that wishes are not overlooked.
Using Life Insurance Trusts
The purchase of life insurance can also prove to be a difficult task for same-sex couples. In order for one party to own insurance on another’s life, the policy owner must have an “insurable interest” in the insured’s life. This is based upon state law, and generally requires a familial or economic/business relationship. Therefore, as same-sex marriages are widely unrecognized, insurance companies likely will deny issuing a policy when one attempts to purchase life insurance on their partner’s life.
However, the Irrevocable Life Insurance Trust (ILIT) can overcome this obstacle. By creating an ILIT to serve as the policy owner, and having a partner as the trust beneficiary, the “insurable interest” problem faced by same-sex couples is avoided. Even if a particular insurance company allows the transfer of an existing policy to a same-sex partner, this transfer would trigger gift tax since same-sex couples cannot avail themselves of the unlimited gift tax marital deduction. An ILIT, however, may prevent the realization of gift tax if drafted properly. Additionally, the ILIT provides a means to remove the policy from the owner’s estate, and can be used for wealth replacement if some assets are lost to estate taxes at the insured partner’s death. An ILIT can also provide protection from creditors of the beneficiary of the ILIT, and can prevent the proceeds from being included in the beneficiary’s estate if drafted appropriately. Although the ILIT is irrevocable, it can be drafted so that if the relationship should terminate, the estranged partner is not entitled to the policy proceeds.
Declaration Of Domestic Partnership
A somewhat new vehicle available to same-sex couples is the Declaration of Domestic Partnership. Certain public and private employers are using such declarations as a form of registry to extend benefits to non-traditional couples which have historically only been offered to traditional couples. This may include such benefits as sick leave to care for a domestic partner, and health care coverage for domestic partners of employees. However, registration often is not confidential, and joint financial responsibility may result from a Declaration. Therefore, it is imperative that the form be read thoroughly before being signed and submitted. Declaration forms are available directly from the recognizing entity. A list of providers currently offering Domestic Partnership recognition can be accessed from Buddy-Buddy.com.
Same-sex couples face many obstacles in planning for the future. However, with the help of a qualified estate planning attorney, couples facing these challenges can overcome many of the hurdles. Effective estate planning alleviates stress and frustration and helps to ensure your wishes are met.
Richard B. Schneider is a member of the bars of Oregon, Washington and New York, as well as the American Academy of Estate Planning Attorneys and the National Academy of Elder Law Attorneys. He has been practicing law since 1982. For more information, please visit his website by clicking here.
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