More people put more hours into planning a vacation than they ever do planning for their estate,” observes Jim Casey, president and CEO of Integrated Wealth Management, a wealth and investment advisory firm with offices in Los Angeles, Palm Springs, and Palm Desert.
Conversations about dying and money are unattractive topics. The fact is that gay couples who don’t address estate planning are at risk for hefty estate taxes, not having their assets go to whom they want, and not having a say in who makes medical decisions.
“Couples need to have the discussion of who to leave things to and what happens if you get sick,” Casey advises. “How do want to be taken care of and by whom?”
The first and foremost item on your estate planning “to do” list should be putting a durable power of attorney for healthcare in place. This document covers who will make medical decisions for you if you are unable to do so yourself. It also allows for visitation and conversations with your physicians, which can be denied to partners not considered a spouse or family member.
Here are a few basics that go a long way to protecting you: a will, durable power of attorney for healthcare, beneficiary designations on insurance policies, stock options, and IRA and 401K custodians. Update these documents every few years. Horror stories abound of outdated beneficiary designations and the havoc they wreak.
“Everybody wants to make sure their partner is taken care of and there is no loophole where relatives can come in,” Terry Daniels says. Daniels and his partner of 40 years, Don Huneke, created an estate plan about 10 years ago and plan to update it soon. “Trusts get old and cumbersome, and things in it don’t pertain to current circumstances any longer. There are people in ours who aren’t even alive anymore,” Daniels says.
If you are in a long-term relationship, consider creating a revocable living trust for you and your partner’s assets. According to Legalzoom.com, “the popularity of the living trust has soared in recent years as more people discover its significant estate-planning benefits. A living trust allows you to transfer property and assets to beneficiaries, but with one key difference: A living trust is not usually subject to probate, which can tie up your estate for years and consume a large portion of its value in court fees.”
An added benefit with a living trust is that personal matters remain private, unlike a probated will. “We have living trusts; and all our assets — basically everything we own, including our house — are in them,” says Joseph Hoffman. He and his partner, John Day, are beneficiaries of each other’s trusts and wills.
A living trust should be used with a “pour-over” will, which transfers to the trust assets a person owned when they died. Without a will or revocable living trust, your assets may not go where you want. Often partners get left in the dust as family members swoop in to claim an estate. A revocable living trust has proven more difficult to contest. “Think things through, and always consider the worst-case scenario,” advises Michael Farr of Farr, Miller & Washington LLC.
Even if you are in a registered domestic partnership or legal same-sex marriage, the federal government doesn’t recognize your union or provide the same consideration as it does to opposite-sex married couples when it comes to estate taxes. According to the Internal Revenue Service, “One of the primary deductions for married decedents is the marital deduction. Property which passes to the surviving spouse under the marital deduction escapes taxation on the death of the first spouse, but that property then becomes part of the surviving spouse’s estate for estate-tax purposes.” No such deal exists for domestic partners or same-sex married couples.
“Because there are no default provisions in the federal tax code like the marital deduction to take advantage of, it is especially important for the gay community to do careful estate plan-ning,” says Palm Springs lawyer Ini Ghidirmic. “Taking advantage of the gift-tax exclusion, which has a lifetime limit of $1 million, is also a valuable estate-planning tool.”
The GLBT community additionally should consider tax-relief tools such as life insurance.
“Since we can’t take advantage of federal tax breaks, my partner of 42 years and I are using life insurance to pay estate taxes,” says Curt Ringness Jr., president of the Desert AIDS Project board. Take note: The owner of a life insurance policy should never be the designated beneficiary.
If there is no instrument in place to pay estate taxes, the hit to a surviving partner can be big. Check with your CPA on estate tax rules and regulations, as they are in flux. The estate tax was repealed for 2010. Yet in 2011, estates valued at $3.5 million and more will have to pay up.
Using the gift tax to reduce an estate’s value also makes good sense. “The annual current gift-tax exclusion is $13,000. If you start early enough using the gift-tax exclusion and transferring money out of your estate, it can make a significant taxable difference over the years,” advises Palm Springs CPA Scott Woodward.
Work with CPAs, attorneys, and wealth management advisors experienced in estate planning for the GLBT community. “Spend a lot of time in advance before you see your attorney, identifying and defining the bene-ficiaries of your estate,” suggests David Wilson, managing director of Northern Trust Bank’s Rancho Mirage office. “Really think about naming specific individuals and their shares and whether you want them to have a flat dollar amount or a percentage. This ensures they have the economic benefit you intended for them.”
After all, that is the goal of effective estate planning.