The intricacies of estate planning for same-sex couples
Updated: January 26, 2018 at 6:04 pm
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When the Supreme Court announced its decision in Obergefell v. Hodges* in 2015, it was rightly viewed as a victory for equality for same-sex couples across the country. As a result of the ruling, same-sex marriages that had once been ignored, disregarded or deemed illegal were immediately granted the same full faith and credit as opposite-sex marriages through the U.S. While various states are still attempting to circumvent or invalidate the effects of Obergefell, estate planners today have an opportunity to design effective estate plans for all couples — same-sex, opposite-sex, married and unmarried. However, while the Supreme Court’s decision may appear to allow estate planners to approach advising same-sex and opposite-sex couples in identical ways, there are still intricacies to same-sex estate plans that attorneys must be aware of when advising clients.
Setting an estate plan in motion
What are some of the concerns estate planning attorneys face when meeting with same-sex couples? Perhaps the first question that needs to be asked is whether the couple is currently married or has plans to get married in the near future.
While Obergefell was a significant victory for same-sex married couples, it had little impact on those couples not married or not wanting to get married. When a same-sex couple has married, or plans to get married, in theory their estate planning should not differ from any other married couples’ estate plan. The same issues that face estate planners of married opposite-sex couples exist when a same-sex couple is the client:
Who should be the recipient of the client’s estate at his or her death?
Who should carry out the process of getting the client’s estate from his or her name to that of the intended heirs?
If minor children are involved, who should have the care and custody of the children until they attain age 18?
In working with same-sex married couples, the answers to these questions are not all that different from the answers provided by opposite-sex married couples:
My surviving spouse or children should be the recipients of my estate.
My surviving spouse should be the primary fiduciary to carry out my plan.
My child’s surviving parent should raise him or her until age 18.
Opposite-sex couples, however, have little concern that their marriages might be subsequently ignored or invalidated. Same-sex couples cannot rely on the fact that marital recognition means that their estate planning concerns have been solved. To that end, married same-sex couples must use other opportunities available to them to carry out their goals.
But what if the same-sex clients are not married and do not intend to get married? Couples have a wide spectrum of opinions on marriage, same-sex and opposite-sex. Some of them have waited for the opportunities afforded by Obergefell and are anxious to get their marriage license; others are just comfortable remaining in a mutually respectful relationship without the formality of “being married.” Regardless of the reason for not getting married, same-sex couples face estate planning challenges from many states’ intestacy laws.
Every state has created a last will and testament for each of its residents. Each state’s intestacy statutes designate how an individual who has not prepared his or her own will would have his or her estate divided upon death. While the intestacy statutes are not as terrible as some would suggest (“if you don’t have a will, the state will get all your property”), pitfalls still exist. For instance, parents and other family members may not condone the relationship or actively exclude LGBTQ family members from the family dynamic. Relying on intestacy statutes for an LGBTQ estate plan could automatically make those non-approving family members heirs of the deceased’s estate, or worse, completely exclude a partner or committed advocate.
While the same problem exists for opposite-sex couples, the issue appears more detrimental when the same-sex partner is involved, because the reason for the familial exclusion is often based on the non-acceptance or disapproval of the LGBTQ person’s choice of romantic partner. Moreover, as discussed below, there are a core set of documents in every estate planning attorney’s toolbox when it comes to estate planning. Just as each state includes a last will and testament for each of its residents, many states also provide, by statute, the order in which individuals may be approached when end-of-life decisions must be made. Similarly, when court-appointed guardianships are required, those same statutes can mandate the order in which a court will consider who should be appointed. The relationship status of non-married same-sex couples to each other often will fall outside the scope of those enumerated appointees.
All of this can really be boiled down to the fact that regardless of same-sex, opposite-sex, married or unmarried, the most important thing every person can do when examining their estate is to plan it.
How to plan if children are involved
If children are involved, the issue can be even more critical depending on the age of the children and what status the children and parent have. We are still in the very early stages for most states that are dealing with the process of same-sex parental adoptions. As each state develops its own processes, current considerations will center on the names that appear on the children’s birth certificate. For parenting purposes, the birth parents may be granted certain preferential powers when only one of the birth parents is living. The expectation is that states that have not addressed this issue in light of the validation of same-sex marriages will do so in the not too distance future; for example, in North Carolina the legislature and state’s attorneys are working with the courts to make this happen. But what can be done in the interim?
Unfortunately, the best answer right now for same-sex couples with children might be to documents as much as possible, express their wishes in as formal and legal a way as possible, and hope for the best. The situation is even graver if the same-sex parents are not married. In those situations, the status of parent and child might have no legal significance on which a decision can be based.
While the care and custody of a minor child is likely of greater importance, unmarried same-sex couples, for many of the same reasons expressed above, may find themselves in a position where the child is viewed by the law as just a stranger. Opposite-sex couples can at least rely on intestacy to include a child in the scope of those who will inherit from a deceased. Until more is done, a child raised by one member of a same-sex couples could be a legal foreigner to that person, unable to inherit or take advantage of some preferential treatment when it comes to the estate.
Inheritance from other family members may also be an important topic for discussion among same-sex couples. For instance, what provisions might grandparents want to consider if leaving a portion of their estates to a grandchild to whom they are not biologically related? Fortunately for the grandparent (or aunt, uncle, etc.) who plans, this should not be an issue. By specifically bequeathing money or property to the named or identifiable child of a same-sex couple, such a gift will be effective to ensure the bequest is completed. But, what if the grandparent has not created a will or has not updated a will that left a portion of the estate to a pre-deceased child? It is very common for wills and trusts to designate that the property that would pass to a son or daughter should pass to that deceased son’s or daughter’s “issue.” Will the child of a same-sex couple, not biologically-related to one spouse, be deemed “issue”? The answer again will depend on the situation.
If both names of the same-sex couples are on the birth certificate, the question should be easily answered: The child should inherit from the grandparent. Additionally, many wills and trusts include express language that adopted children are to be treated in the same manner as biological children for estate purposes. Thus, in situations where one same-sex parent adopts the biological child of his or her spouse, the grandparent’s intended gift should be honored.
Be sure to consider taxes
Taxes can also be a subject of concern for same-sex couples. While the increase in the lifetime exemption amount to over $5 million has made tax planning a little less important than in prior years, more affluent same-sex couples may still be affected. Going back to the distinction between married and unmarried couples, same-sex couples who have not married or who do not plan to marry, and who have estates larger than the lifetime exemption will likely owe estate taxes at death. Additionally, the Code’s allowance for portability for an unused exemption applies to only married couples, whether same-sex or opposite-sex. Federal benefits are also affected, but again only if the couple is married.
The paper trail matters
What are the available options or recommendations for same-sex couples? First is recognizing the fact that despite recent progress, same-sex estate planning still requires the parties to plan. Getting the basic four or five documents in place can go a long way toward alleviating the problems that can arise. To that end, durable powers of attorney for financial decisions, health care powers of attorney coupled with advance directives or living wills, guardianship provisions (both short-term and long-term) for minor children, and some combination of a last will and testament and trust document should all be included as part of the same-sex couple’s basic estate plan.
As with opposite-sex couples, the implementation of a comprehensive overall estate plan puts the power to make these most important decision in the couples’ own hands, not the state, the county courts, or others. But having those documents alone will not address all the issues that are out there. Same-sex couples must be proactive in designating where they want their estate or assets to go, and so other avenues must also be explored. Joint ownership of accounts, beneficiary designations, federal benefit programs, gifting programs, and non-probate ownership forms should all be investigated by the same-sex couple to maximize the opportunities available to transfer assets to the person or persons to whom the individuals would like to get their estates.
Joint ownership accounts with survivorship pass by the terms of the bank contract to the named joint owner. While these accounts can be brought back, generally, into the estate of the deceased person to pay creditors, the immediate availability to a surviving party cannot be understated. Similarly, joint ownership with a survivorship feature in real estate can also be an alternative. And while joint ownership with rights of survivorship is often how same-sex couples have titled bank accounts and real estate pre-Obergefell, one simple step that can provide additional protection is to re-title these assets as tenancy by the entireties, a special form of survivorship between spouses. In addition to the transfer-on-death aspect, tenancy by the entirety property has heightened protection from the credits of only one half of the couple.
Beneficiary designations are also important considerations. Many couples name each other as the primary beneficiary, and this is a routine practice in many estate plans. The concern is often the choice of a contingent beneficiary or the complete lack of a contingent beneficiary. While this problem is not unique for same-sex couples, it does compound the problem when an insurance company or plan administrator notifies the survivor that there was no beneficiary appointed and the default payee will become the decedent’s estate. If the deceased took the steps to execute a last will and testament, it might not be an issue; however, if they have failed to properly plan the beneficiary designation they have likely forgone the creation of a will. Thus, those benefits go to the estate — which triggers the kinds of issues discussed above that can arise when one member of a same-sex couple relies on intestacy to distribute his or her assets.
Revocable living trusts
One opportunity at the forefront of all estate planning today is the use of revocable living trusts (RLTs). RLTs have the advantage of being non-probate assets when looked at for distributing an estate to the intended beneficiaries, and thus are generally free from court interference. Additionally, because RLTs are at their most basic a simple contract, they have privacy as another fact that can recommend their use. While privacy and probate avoidance may not be the only reasons to use RLTs, for same-sex couples, these advantages may tip the scales to including them in a comprehensive plan.
With properly funded RLTs, many of the financial aspects of estate planning can be tackled in a single document. Assets owned or titled by the trust (or trustee) can be controlled by a successor trustee upon the settlor’s death or incapacity, thus making the RLT similar to a combination will and durable power of attorney. And, because the settlor appoints his or her successors, an additional layer of court involvement can be avoided.
These opportunities are relatively easy to implement, and while some of them do require upfront costs (like the process of funding the RLT), the long-term savings, both in efficiency and economics, will considerably outweigh potential troubles associated with not following these recommendations. It cannot be overstressed that the simplest way to address the complexities associate with estate planning for same-sex couples is to get started.
One of the overlooked repercussion of the legalization of same-sex marriage is the fact that married same-sex couples now face the prospect of that marriage not surviving. They now face another issue: What should be done if the couple separates and ultimately divorces?
Similar to opposite-sex couples, a court’s order dissolving the bonds of matrimony will have the effect of voiding many of the provisions in estate planning documents that favor the other spouse. However, many jurisdictions require a term of separation before a divorce can be filed. In those instances, it is imperative the same-sex couples take the same precautionary steps that opposite-sex couples do.
As soon as practical, the separated and soon-to be divorced couple should update their respective estate planning documents. This includes not only the wills and RLTs, but also powers of attorney, both financial and healthcare. It could also mean revisiting beneficiary designations, although in some instances these cannot be changed until the divorce order is issued by the court.
Ultimately, the love and excitement between couples that was generated by legalized same-sex marriage could fade over time, and spouses may experience the same feelings of mistrust, anger, and in some cases, hate, that opposite-sex couples face. If that time comes, would an individual want the estranged or former spouse to retain the power over his or her estate or financial affairs? Probably not, and thus the need arises to include a discussion about estate planning in the early stages of the domestic situation.
Although these intricacies and nuances to estate planning for same-sex couples exist, the most important thing to communicate to all same-sex couples who find themselves contemplating estate planning is that they have the power to avoid or at least minimize many of the potential pitfalls. That fact alone makes their planning no different than anyone else’s. The ability and relative simplicity of crafting a well-thought-out estate plan will provide peace of mind and efficiency, and ensure that each individual’s own intentions are followed.
Although situations remain for which even an executed estate plan cannot prepare, the vast majority of same-sex couples can alleviate the concern, worry, and uncertainty of what will happen after they are gone by simply scheduling a meeting with a local estate planning attorney and following through with his or her recommendations. The opportunity is there; same-sex couples and their estate planning attorneys just have to take it. : :
*115 AFTR2d 2015-2309 (S. Ct., 2015).
Originally published: (“The Intricacies of Estate Planning for Same-Sex Couples,” David DuFault, “Thomson Reuters Estate Planning,” Volume 43/Number 8. [2016.][DuFault, David])
— David T. DuFault is an estate planning and business attorney at Sodoma Law, P.C. in Charlotte, N.C. DuFault holds a Juris Doctor from Campbell University, Norman Adrian Wiggins School of Law, a Masters in Accountancy from the University of North Carolina at Charlotte, Belk College of Business, and a Masters of Laws from The University of Alabama School of Law.
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