Go Your Own Way

October 3, 2008

When I lived with my first husband prior to marriage, my father was concerned about his daughter "living in sin." Fast-forward 20 years when I got engaged to my second husband. My father strongly recommended that we live together and questioned marriage at our age. How times have changed . . . but apparently too fast for our legal and tax systems.

Although statistics show that the traditional family is now the minority, the legal rights of committed couples of the opposite or same sex are evolving at a snail's pace. In May 2008, California joined Massachusetts in recognizing same-sex marriages. Other states have approved civil unions, domestic partnerships, and common-law marriages. These substitutes for marriage are intended to give a couple the same benefits, protections, and responsibilities of married couples for state law purposes. But estate planning for the nontraditional couple remains a challenge, in part because the 1996 Defense of Marriage Act prevents the federal government from recognizing same-sex marriage under its tax laws and further does not require one state to recognize the same-sex marriage laws of another state or country.

Still, though laws vary from state to state, there are basic steps involved in building a good estate plan. The following offers an overview of the process, as well as some tools and techniques for helping nontraditional couples achieve their goals.

Steps To Building A Solid Estate Plan
Determine whether the relationship has been formalized in the couple's resident state. Taxes aside, there is an immediate need for each partner to make major medical and end-of-life decisions for the other. This can be accomplished in several ways.

In states recognizing civil unions and domestic partnerships, couples normally have all the rights of spouses under state law, including hospital visitation rights and the right to make medical decisions and be appointed as guardian, as well as to inherit the partner's property without state tax. In other states, traditional estate planning documents can achieve the same result.

Ensure that basic estate planning documents are in order. Among the basic estate planning documents for any couple are the durable power of attorney, health care proxy, and living will:
A power of attorney allows someone else to handle a person's financial affairs, thus avoiding a court-ordered conservatorship.
A durable power of attorney is immediate and continues even if an individual is disabled or incompetent.
A springing power of attorney becomes effective only when an individual becomes incapacitated.
A health care power of attorney designates who can make medical decisions on someone's behalf.
A living will states wishes about artificial life support.

Other documents-often overlooked-are a hospital visitation form that instructs the hospital about who may or who may not visit an individual, a statement outlining funeral and burial wishes, and a nomination of guardian if incapacitated.

Review wills, trusts, and domestic partnership agreements. Next, review the couple's wills, trusts, relationship and business documents, asset titling, and beneficiary designations. Consider the partner's differences in wealth, children of a prior marriage, business ownership, and anticipated family inheritance. A domestic partnership agreement acts as both a will and a prenuptial agreement by outlining what will happen at death, incapacity, or break-up. The agreement should address how property acquired during the relationship will be divided upon termination of the relationship, the visitation and custody rights of children, the dependency status of the partner, what property will remain separate from the agreement, who will occupy a residence, and support after the relationship ends.

Summarize your understanding of the current plan. Draft a summary of your understanding of the current estate plan and compare it with the couple's understanding. This will lead you to identify where the current plan conflicts with client wishes or where current titling and beneficiary designations conflict with the estate plan.

A word about privacy issues. If privacy is an issue, assets held in trust avoid the public scrutiny of the probate courts. Moreover, a revocable trust is less likely to be contested by estranged relatives. Trusts can be written so that if the couple separates, the beneficial interest is shifted to the trust's other beneficiaries.

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