Our Monthly Tip, as featured in Family Lawyer Magazine:
Happy Pride Month! The landmark 2015 Supreme Court case, Obergefell v. Hodges, which legalized same-sex marriage nationwide, shifted the principal question of marriage for many same-sex couples from “Why can’t we get married?” to “Should we get married?” Although planning is now essentially the same for all married couples, whether same or opposite sex, Pride Month is a great opportunity for same-sex couples to:
- Review their plans to be sure they take advantage of benefits that were once reserved for opposite-sex spouses
- Focus on the following key planning considerations, irrespective of marital status
5 Planning Considerations for Same-Sex Couples
1. Review existing estate plans
Couples should review their existing estate plans with a team of advisors to confirm that their planning reflects their current wishes. Married couples have the benefit of the unlimited marital deduction, which means that they can gift during their lifetime or bequeath at death an unlimited amount of assets to their U.S. citizen surviving spouse without any gift or estate tax. Unmarried couples will have to engage in different estate planning techniques to pass the maximum amount they can to their partners without the imposition of those taxes. Aside from tax consequences, if an individual does not have a will, his or her state’s intestacy laws will typically provide for a minimum amount to pass to the surviving spouse, but if a couple is not married, the entire estate may pass away from the intended partner if the couple has not proactively planned.
2. Consider establishing a living trust
A revocable living trust, which is a trust set up during an individual’s lifetime that may be changed or revoked at any time, can be used as an individual’s main dispositive document instead of a will. Unlike a will, the provisions of a revocable trust kick in not only in the event of death but also in the event of incapacity. This means that a living trust can provide for the trust creator, the creator’s partner, and their children during any period of incapacity prior to death. At death, the trust can have the same provisions that an individual would put in a will, but while a will is a public document, trust provisions may be kept confidential. Using a revocable trust may be particularly useful for a couple concerned that family members may challenge their wishes in the event they become disabled, or challenge their will at death. Appointing an independent trustee on an individual’s death or disability, particularly a neutral and experienced corporate trustee, can often defuse the acrimony that might otherwise arise between the trust creator’s partner and other family members. Additionally, having assets pass via a revocable trust instead of under a will can avoid the cost and potential delays associated with the probate process.
3. Update advanced directives
Couples should consider having advanced directives in place, including a health care proxy (which allows one partner to make medical decisions for the other in the event the first partner is unable to do so), a power of attorney (which allows one partner to handle the other’s financial affairs), a living will (which evidences an intent not to be kept alive in a vegetative state), and a HIPPA privacy authorization form (which allows health care professionals to disclose medical information). These documents are especially important for unmarried couples, who could face additional challenges to prove that they are authorized to make medical or financial decisions on behalf of their partners.
4. Update beneficiary designations
Couples should also periodically review (and update) their beneficiary designations. If a partner passes away, an outdated or blank beneficiary designation could spell disaster for the surviving partner, resulting in an unintended beneficiary receiving the funds. Similarly, if an ex-partner was named as a beneficiary of retirement or life insurance accounts, and that designation was not updated to remove them, their ex could inherit significant assets they were not intended to receive. While a surviving spouse may have some rights depending on the type of account, best practice is to keep beneficiary designations updated whether a couple is married or not.
5. Protect the children
Same-sex couples with children often face a unique set of estate planning challenges if only one parent is biologically related to the children. Particularly for unmarried couples or couples who marry with existing children, children who are adopted or biologically related to one partner should be clearly identified in all estate planning documents of both partners to provide for their financial future. The non-biologically related partner may consider adopting the child if there is no other biological parent to protect against a future potential custody battle with their partner’s family if the biological parent dies or becomes incapacitated.
The bottom line? All same-sex couples should have a comprehensive plan in place
Although lack of planning can have disastrous consequences for any individual, the potential pitfalls are particularly rife for unmarried partners. That said, the key takeaway is to have a comprehensive plan in place, whether an individual is married or not. Indeed, although married same-sex couples can now leverage spousal benefits once reserved for opposite-sex spouses, the considerations listed above are important for all. The right team of advisors can help you navigate these complex issues and secure your financial future.
This article is for general information only and is not intended as an offer or solicitation for the sale of any financial product, service or other professional advice. Wilmington Trust does not provide tax, legal or accounting advice. Professional advice always requires consideration of individual circumstances.