Proper estate planning is daunting but necessary for anyone who wants to ensure that their wishes for end-of-life care and the disposition of their assets are carried out. It could be even more critical for LGBTQIA+ families. While laws and attitudes continue to evolve, limitations still exist in some areas. Estate planning is one of them. With June being LGBTQIA+ Pride Month, it’s a perfect time for you to turn your attention to estate planning and prevent the creation of important estate planning documents from slipping through the cracks.

Unless you are married or have an estate plan, your assets and any decision-making regarding end-of- life care will likely revert to your family of origin. Love them or not, that is almost certainly not what you want to happen. If you have no estate plan, every state provides default rules about who might be responsible for your care if you are incapacitated or to determine who would receive your assets when you die.

Marriage Key to Health Care Decision-Making

Many things have changed since the 2015 Obergefell v. Hodges Supreme Court decision that legalized same-sex marriage. Even so, many same-sex couples choose not to marry or to legally formalize their relationships. It also is unlikely these couples have taken the time to create a Will, a Durable Financial Power of Attorney, and an Advanced Health Care Directive or Health Care Proxy. This can have negative consequences, both in decision-making for end-of-life care and asset transfer and inheritance tax issues. These omissions can cause a lot of problems for a surviving partner.

An Advanced Health Care Directive is an important component to every individual’s estate planning. It enables you to appoint an individual of your choosing to make important health care decisions if you are ill or incapacitated and cannot advocate for yourself. If a married couple does not have a Health Care Proxy, your physician will likely defer to your spouse to make decisions about your care. That is not always the case with unmarried same-sex couples. While this is not solely a same-sex issue, it tends to come up more with same-sex partners.

Marriage Influences Survivor Asset Transfer

There’s also a secondary monetary issue. You can title a house deed for joint tenancy with rights of survivorship, and you can name anyone to be your beneficiary on a life insurance policy and in both cases facilitate a seamless transition. But that is not the case with other holdings. Laws vary from state-to-state, and New Jersey, for example, has an inheritance tax. While the inheritance tax does not apply to assets that go to a spouse, it does apply to anyone who’s not your spouse. You could be with someone for 50 years and never be legally married or set up a civil union. This means that everything that your partner would inherit from you will be taxed as much as 16 percent. That can end up being a lot of money.

If you’re not married or have legally formalized your relationship as a civil union, there’s no getting around the inheritance tax. Imagine what happens when your surviving partner takes monies out of your 401(k). Getting taxed on your 401(k) withdrawals is standard. But if you and your partner are not married, an extra 15 percent or 16 percent in tax will be tacked onto the withdrawal. Even having a Will won’t circumvent the issue.

The good news is that same-sex couples who marry can enjoy the unlimited marital deduction for federal estate and gift taxes – a privilege many heterosexual married couples have enjoyed for decades. Gay and lesbian spouses who consummate their relationship through marriage can now generally leave an unlimited amount of assets to their surviving spouse without triggering a federal estate tax, providing both are U.S. citizens. A same-sex spouse can also now rollover assets from a deceased spouse’s retirement accounts to their account without a mandatory minimum distribution or lump-sum distribution. By revisiting their financial and estate plan, married same-sex couples can take take advantage of the marital deduction, rollover assets, and free up considerable liquidity.

Some Other Issues for Same-Sex Couples

Same-sex couples also have unique concerns when it comes to children, especially when only one partner is the biological parent – a common occurrence in same-sex marriages. Typically, when parents die, their assets are passed on to their children. If this is an estate planning goal for same-sex couples, it’s important to reach out to a family law attorney to discuss adoption.

One last item that occasionally arises in families. There’s sometimes a stigma attached to same-sex marriages that can also create problems even when Wills and other estate planning documents have been prepared. At the time of death, people start haggling over who’s in charge or who has rights – the same kind of thing that often happens with second marriages. Because such scenarios may find more fertile ground with same-sex or second marriages, it’s wise to have those important conversations about your end-of-life issues before and while you are preparing and/or reviewing your estate plan. Firmly stating your wishes during the planning stage, not when the family is in crisis mode, is the optimal time to raise your family’s awareness and encourage their understanding.

Get Your Ducks in a Row With Essential Estate Documents

Having a comprehensive plan in place can help you circumvent the complexities of estate planning. Review this list to become familiar with the estate planning documents you need:

• Will – Research has suggested that individuals within the LGBTQIA+ community are less likely than non-LGBTQIA+ couples to have a Will. The importance of having a Will to protect assets cannot be emphasized enough. Work with your estate planning attorney to draft this important document. You may even wish to explore additional options that can prevent your Will from being challenged.
• Advanced Directive for Health Care – Advanced Directive is the general term that refers to the various documents that could include a Living Will, Instruction Directive, Health Care Proxy or Health Care Power of Attorney. Whether you are in a domestic partnership and unmarried or married, the Advanced Directive for Health Care is essential to allow your physician and other medical professionals to communicate with your partner about your medical condition, designate your partner or spouse as being able to make medical decisions on your behalf, and alert medical professionals and your family as to the treatments you want to receive or refuse.
• Durable (Financial) Power of Attorney – This document allows someone (typically your spouse or your partner) to make financial decisions on your behalf should you be unable to do so.
• Trust – You may wish to speak with your estate attorney about creating a trust which may provide your assets with even greater protection than a Will.

At Phelan, Frantz, Ohlig & Wegbreit, LLC, we are always prepared to provide you with the estate planning guidance that is most appropriate for your specific situation. We are confident in our knowledge and ability to successfully navigate through any of the complexities involved.

Call us at (908) 232-2244 and be proactive in creating an estate plan that has your family’s best interests at heart.