Estate planning is important for people from all walks of life, not just those with extensive assets. Not only can it ensure that your end-of-life wishes are respected, but it can also help the surviving loved ones who are tasked with handling your final affairs. Without a valid will or trust, your property will pass according to the laws of intestacy in your state, whether or not the outcome of that process is consistent with your wishes.
After the legalization of same-sex marriage in the Supreme Court case Obergefell v. Hodges, LGBTQ estate planning for couples in same-sex marriages became similar to estate planning for those in opposite-sex marriages. Married same-sex couples now have access to certain estate planning tools that only those in opposite-sex marriages once possessed. These tools vary from state to state.
For example, one important change is that same-sex married couples now face no limitations on gifts or transfers of property to their spouses. Those who are unmarried remain restricted by a rule that limits the amount of gifts that can be given to another person without tax consequences. Another estate tax benefit available to married couples is that a surviving spouse has the right to add a decedent’s unused estate tax exclusion amounts to his or her own unused exclusion amount under federal law. This benefit now applies to same-sex married couples. LGBTQ married couples can also now use gift splitting, which views the amount of a gift as coming 1/2 from each spouse, even if in actuality the gift is only from one spouse.
Generally, only married couples can take title to an estate as tenants by the entirety. This form of tenancy includes a joint right of survivorship, whereby property passes automatically to the surviving spouse upon the death of one of the spouses. In many states, creditors of one spouse can't attach a non-debtor spouse's interest in property held as tenants by the entirety. After Obergefell, same-sex spouses can also take property as tenants by the entirety.
However, those in domestic partnerships or less formal relationships will encounter the same estate planning concerns that they faced before Obergefell.
Wills and Trusts
If an individual dies with a will, this document will determine which parties receive which of the deceased’s assets and personal possessions upon that individual’s death. The individual making the will is known as a testator. A will usually contains a list of beneficiaries. These are the individuals or entities who will receive the deceased’s assets. The testator will be able to designate an executor, which is the person who will distribute the possessions and property from the estate of the deceased.
Since Obergefell, in some states a surviving same-sex spouse can now renounce the will and take the surviving spouse's statutory share of the estate instead. There is no intestate share available to a domestic partner or other person in a romantic relationship with the decedent.
Wills are particularly important for those members of the LGBTQ community who are not married, but who are in serious relationships. If an individual dies intestate (i.e., without a will), the individual’s assets generally pass to the next of kin, which is usually a spouse. If the testator is in a same-sex marriage, his or her property will pass to their spouse.
However, if the testator is in a domestic partnership or other serious romantic relationship, the property may pass to someone to whom the testator would not choose to leave property. In a will, an individual can direct property or various other assets to be passed to his or her partner, even if the state does not recognize that person as the spouse of the deceased.
Additionally, it may be beneficial to consider creating a trust. A trust allows you to transfer ownership of your assets to a legal entity instead of a person. You can name yourself the trustee, the individual who oversees the disbursement of assets, until such time as you are unable to do so. A trust also allows you to designate an alternate trustee, a person who would oversee disbursement of assets in case you become incapacitated and can no longer function as the trustee over your trust.
It is more expensive to create a trust. However, trusts are beneficial because it takes less time to disburse possessions from a trust, there is more privacy, and a trust is less susceptible to legal challenges by family members or others. Trusts may also have favorable tax consequences.
A healthcare directive allows you to designate the type of healthcare you receive at the end of your life in the event you are incapacitated or unable to speak for yourself. Two of the most common healthcare directives are a living will and a healthcare power of attorney.
A living will allows you to designate the type of healthcare you do or do not want in case of a medical emergency (e.g., whether you want to be resuscitated). This is crucial when a spouse or partner doesn't have a good relationship with the other spouse's blood relatives. A living will ensures that the individual you want to make your decisions is able to do that.
A healthcare power of attorney allows you to designate the individual whom you want to make the final decisions regarding your healthcare if you are unable to make the decision yourself. A healthcare power of attorney is particularly important for same-sex couples that are unmarried or in domestic partnerships. This document would allow your partner to make these vital end-of-life decisions, rather than a family member or someone else fighting for the decision-making power.
Financial Power of Attorney
A financial power of attorney designates the individual whom you want to control your finances if you are unable to do so. There are two versions of this document. First, there is a limited power of attorney, which gives a designated individual control over your finances for a specific purpose or for a restricted time period. Additionally, there is a durable power of attorney, which gives a designated individual control over your finances for an indefinite period of time. The durable power of attorney will be used if you become incapacitated and do not have the ability to control your finances. Your spouse's status as a spouse will not on its own give him or her decision-making power over your affairs.
Often, individuals will create a final arrangements document, usually called a funeral directive or disposition of remains directive. This document can be included as part of a will, or it can be a separate document of the estate, and it describes details of how a decedent would like his or her funeral or cremation to be conducted.