Estate Planning Hurdles For Same Sex Couples
With arguments over the constitutionality of the Defense of Marriage Act (“DOMA”) having been heard at the United States Supreme Court level, what follows is a basic outline of some of the implications of these rights presently being experienced by members of the LGBT community.
While only some states allow for the lawful marriage of same sex couples, most do not. Most of these states don’t even acknowledge marriages that were lawfully obtained in other states. In these jurisdictions, the effects are wide ranging and have a significant impact relating to issues such as asset protection, the laws of intestacy, guardianship and estate and gift taxation). These effects are further aggravated by federal laws not acknowledging same sex marriages either. These areas impact this community especially relating to planning for their families. (Estate planning, such as wills and trusts, and Business Planning). As you will see, the common theme is the limited definition of “spouse”. Consequently, same sex couples must engage in more burdensome estate planning to ensure that their wishes are carried out.
State Level (Details of each area)
Tenants By The Entirety: In Florida, there are many ways to protect your assets from creditors. Lawfully married (recognized) couples enjoy a form of co-tenancy, “tenants by the entirety” or “TBE” that offers one layer of protection. A creditor that has obtained a judgment against one spouse is not permitted to take away (levy or take possession of) assets that are owned by both spouses as TBE. The creditor must obtain a judgment against both spouses in order to take assets belonging to the couple to satisfy the judgment. Importantly, the claim need not be related to the same underlying cause of action. This limits the creditor’s available remedies to levying the couples’ other assets that are not owned by TBE. Same sex couples often are not availed this protection and must look to alternate forms of ownership, including qualified retirement accounts (IRAs, life insurance), business entities and irrevocable trusts.
Laws of Intestacy
In every state, including Florida, if you pass away owning assets in your name, you have an estate and it must go through probate proceedings. Probate is a formal legal process where a personal representative is appointed to administer your estate through court proceedings. They have substantial responsibility as well as accountability. During this process, the decedent’s: 1) assets are identified and gathered; 2) creditors are notified and paid; and 3) property is devised to appropriate beneficiaries designated in a validly executed last will and testament or by statute. In Florida, if you pass away without a validly executed will, your personal representative and beneficiaries are chosen for you under what is called “the laws of intestacy”. Under this body of law, a spouse generally: 1) is guaranteed a minimum of 30% of the decedent’s “elective estate”, which is basically most of the estate, unless specifically waived by prenuptial or postnuptial agreement; 2) has a priority in distribution of assets as a beneficiary of the deceased’s estate; and 3) has a preference in appointment of personal representative. As mentioned above, these laws revolve around the definition of “spouse”, which does not include same sex couples in most states. Consequently, same sex couples do not enjoy any of these rights, preferences or priorities and must plan accordingly to avoid potentially undesired and adverse results.
Estate planning documents typically include a Power of Attorney and Health Care Surrogate. A Power of Attorney is a document that appoints an attorney-in-fact as your agent to administer your financial and administrative affairs on your behalf. A health Care Surrogate appoints someone to make health care decisions on your behalf in the event your unable to do so yourself. If you fail to appoint someone in these capacities, priority of appointment is determined by familial relationship. First in priority is generally a person’s spouse, which, again, does not include same sex a partner/spouse in most states.
If you’ve failed to plan ahead by utilizing a power of attorney or revocable and irrevocable trusts, and you become mentally incapacitated by illness, injury or otherwise, someone must be appointed to handle your financial and administrative affairs. Again, there exists a priority of appointment that causes trouble for same sex spouses.
Federal Level (Estate and Gift Taxes)
Under the current federal laws, a spouse is permitted to transfer or “shift” an unlimited amount of property to his/her spouse without incurring any gift tax liability (“Marital Deduction”). A central theme of traditional estate planning involves taking advantage of the Marital Deduction to defer estate tax liability until the death of the surviving spouse. This is often achieved using special trusts, which encapsulate the unified credit, or amount excluded from estate tax liability (currently $5,250,000 per spouse). They are often referred to as credit shelter trusts, and they are used in conjunction with marital trusts. Click here for a current example of a costly case in point.
Like many states, federal law does not presently include same sex couples in the definition of “spouse”. As a result of these disparities in treatment, same sex couples are forced to engage in substantial estate and business planning in order to ensure that they retain rights, priorities and preferences with respect to a variety of areas of state and federal law, that heterosexual couples enjoy.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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