Life Partner and LGBT
Alternative Lifestyles and Estate Plans
LGBT and other couples with non-traditional lifestyles have abundant reasons to plan their estates. The reasons have nothing to do with gender or sexual preference-only the legal significance of your relationships because of a 1996 law called the Defense of Marriage Act (“DOMA”) that says for a marriage to be recognized by the federal government, it must be between one man and one woman. Among other things, this covers all tax laws. On February 17 2011, the Obama administration announced that it would not defend DOMA in federal court because it believes the law is unconstitutional in its discrimination against gay and lesbian couples. However, DOMA remains the law until the Supreme Court rules it to be unconstitutional.
In most states, spouses, parents, children, siblings, nephews, nieces and even 2nd cousins all have some degree of legal relationship that is greater than a "life partner". The U.S. government does not currently recognize life partnership as a legal relationship.
Same-sex marriage is clearly recognized in only a few states. Legal unions and domestic partnerships, which generally confer fewer rights than marriage, are recognized in about 20 states. New statutes, voter initiatives, constitutional prohibitions and challenges of existing law revolving around these issues are illustrative that same-sex legal status is constantly evolving. Other state's recognition of same-sex marriages in the states where it is the law also factor into the equation.
Non-married straight couples who are life partners lack legal status in most state jurisdictions. One common myth is that couples of the opposite gender who live together for 7 years become common law spouses. Not true. Common law marriage is recognized in relatively few states, and where it is accepted requires at least:
- two people capable of marriage;
- living together a specified period of time;
- holding themselves out to others as being a married couple (determined by such factors as sharing a last name, filing taxes jointly and having an "exclusive relationship").
- Approximately the same number of jurisdictions allow for common law marriage as recognize some form of same-sex legal status, with only a few overlaps.
The absence of any legally recognized relationship for a life partner manifests itself in four broad strains with regard to estate planning:
- Selection of fiduciaries;
- Determining intestate beneficiaries;
- No unlimited marital deduction or portability for federal estate and gift tax;
- Potential denial of opportunity for IRA rollover.
Fiduciaries are persons or companies who act on your behalf when you die or become incapacitated. They are obligated to act in your best interest rather than their own. That means no self-dealing. Planning your estate includes picking your fiduciaries. Without the right documents, they are selected by someone else, most likely the court. Fiduciaries include:
A personal representative for your probate estate when you die. The personal representative collects your assets, pays your bills and distributes the balance to your beneficiaries. If you don't want the court to pick your personal representative, write a will to select an executor and establish that control. Better yet, put assets into a revocable living trust and select a future trustee to handle your financial matters without court involvement.
A guardian over your person if you become incapacitated. A personal guardian makes health care and other lifestyle decisions for you, including where you live. A health care power of attorney enables you to select an agent (a/k/a proxy) who will make these types of intimate decisions for you if and when you are unable to make or communicate them.
A guardian over your estate to take care of your finances upon incapacity. A power of attorney for property allows you to appoint someone to control your assets and income if and when you become unable to make or communicate decisions about such matters. A revocable living trust may also serve this purpose with regard to assets transferred into the trust during your lifetime.
For all of these roles, you can control the fiduciary selection process. If you want your life partner to be the one who takes over upon incapacity or death, put it in writing or someone else can end up in control.
Intestate beneficiaries are the persons who inherit probate assets from you when you die without a will. Probate assets are assets you own outside a trust, where there is no surviving joint tenant or beneficiary designation on file with the financial institution. Probate assets go to the beneficiaries you specify in your will, if you have one, otherwise to your intestate heirs. Trust assets are distributed to the beneficiaries you choose, under any conditions you designate.
Since a life partner is generally not related to you, he/she is not a beneficiary unless you make him/her one via proper documentation.
Unlimited Marital Deduction
The Unlimited Marital Deduction allows spouses to make or receive lifetime gifts of any size with no tax or reporting requirement. If the spouse who is receiving the gift is not a citizen, then only a maximum of $136,000 can be transferred annually without having to file a gift tax return. Filing a gift tax return depletes your federal applicable exclusion amount of $5 million and triggers a gift tax if the gift exceeds $5 million.
If a U.S. citizen inherits assets from a spouse, there's no estate tax, no matter the amount. It can be an outright gift or subject to trust limitations as long as the survivor gets all of the income on principal in excess of the applicable exclusion amount.
If the inheriting spouse is not a U.S. citizen, then any bequest in excess of the applicable exclusion amount that isn't made to a qualifying trust triggers an estate tax, just as there would be for any non-spouse beneficiary.
If your estate exceeds the applicable exclusion amount, then upon your death the excess will be subject to estate taxes unless it is being distributed:
- Outright or to a qualifying trust for a spouse who is a U.S. citizen;
- to a qualifying trust for a non citizen spouse;
- to a qualifying U.S. non-profit entity.
Distributions to a life partner who is not a spouse do not qualify for an unlimited marital deduction. The unlimited marital deduction does not apply to same-gender spouses at this time, even if the marriage is recognized by state law.
Portability allows the surviving spouse to maximize
estate tax exemptions without gifting prior to the
death of the first spouse to die. Since the federal
government does not yet recognize marriage between
same-gender spouses for tax reasons, this is not
available to the surviving spouse of gay and lesbian
If you are 70 ½, you must take required minimum required distribution (RMD) from IRAs and often from other qualified retirement plans, such as 401Ks, 403Bs, 457s and others.
You also have to take money out if you are an inheriting non-spouse, no matter what your age. At present time only a spouse of opposite gender can rollover your IRA when you die and treat it like he/she is the original owner. Others may be able to “stretch” payments over actuarial life expectancies, if “designated beneficiary” rules are met.
If you live in the Chicago or Lake County area, and need an experienced Trust attorney, please contact Matlin and Associates.
Types of Trusts We Establish:
- Estate Planning
- Probate & Trust Administration