Due to the recent legalization of same-sex marriage throughout the United States, same-sex couples now, more than ever, should have proper estate planning in place. While same-sex marriage is legal in every state, many same-sex couples prefer to remain unwed, and careful consideration should be given to the estate planning documentation of these individuals. Unwed same-sex couples need to specifically name their partner in documentation so that such partner may make decisions in the event of disability and death. Married same-sex couples also need their estate plans reviewed.
Here are some practical suggestions for preparing and updating documentation for same-sex couples in light of the Supreme Court’s decisions in Windsor and Obergefell:
- Review estate planning to ensure the plan accomplishes the couple’s goals. A spouse may have children which he or she wishes to benefit from a prior marriage in addition to leaving assets for his or her spouse. A surviving same-sex spouse is now entitled to election rights against his or her spouse’s will which would entitle him or her to 1/3 of the personal property in his or her spouse’s estate and 25% of the net fair market value of the real estate which the deceased spouse owned. In addition, the surviving spouse is entitled to a survivor’s allowance of $25,000 upon his or her spouse’s death. If the couple wishes to benefit children in addition to the spouse, updates may need to be made to planning to account for or prevent the election against a will in order to accomplish the client’s goals.
- Review life insurance situations. Many same-sex couples have life insurance policies in place which were purchased to provide estate or inheritance tax liquidity at the death of the first spouse. With the abolishment of most state inheritance taxes and the increase in the federal estate tax exemption, these insurance policies may no longer be needed. A review of the couple’s insurance policies should be performed. If the proceeds are still desired for other beneficiaries, perhaps those policies could be converted to second-to-die policies. Beneficiary designations should also be reviewed to ensure the policy proceeds pay to the intended beneficiaries. Remember that the beneficiary designation controls who receives insurance proceeds; those funds do not pass by will or trust.
- Review beneficiary designations on all retirement plans. If a person wishes to leave his or her account to a beneficiary other than his or her spouse, the beneficiary form may need to be redone to provide for a spousal waiver if the couple is lawfully wed. As with life insurance policies, the beneficiary designation controls who receives retirement plan proceeds, not a person’s will or trust.
- Consider spousal survivor rights on annuities and pension plans. Elections may now need to be redone if the couple is legally married.
- Consider portability for federal estate tax purposes. If a same-sex couple has assets which exceed one federal estate tax exemption (currently $5.43 million), it is now possible to carry over a deceased spouse’s unused federal estate tax exemption at his or her death to eliminate the payment of federal estate tax. Also consider estate equalization to account for state estate tax issues in those states which still impose an estate or inheritance tax. Estate equalization involves transferring assets between spouses so that each spouse has approximately the same size estate.
- Consider utilizing non-probate strategies such as jointly owned property or Indiana’s Transfer On Death Act. This strategy works well for both married and unmarried same-sex couples, and allows for assets of almost any kind to pass by beneficiary designation resulting in the avoidance of probate when a spouse dies.
- Many same-sex couples own real estate jointly with rights of survivorship. The implementation of the Baskin and Obergefell decisions should allow for same-sex couples to own property as tenants by the entirety (TBE). TBE is a type of joint ownership reserved for married couples which provides asset protection for the real estate. If one spouse be sued, the real estate is protected if held as TBE because the creditors of one spouse cannot force a sale of the property to collect on a debt of the other spouse.
With laws regarding same sex couples evolving so quickly, it is more important than ever for couples to carefully develop, execute, and review their estate plans!
– by Rebecca W. Geyer of Rebecca W. Geyer & Associates