LGBT ESTATE PLANNING GUIDE
In November 2013, Hawaii and Illinois officially legalized gay marriagereaching nearly 30% adoption of U.S. states. Governor Neil Abercrombie signed the Hawaii law, moving President Obama’s birthplace to take the long overdue step of affording gay and lesbian couples with the same rights as their straight counterparts. “I’ve always been proud to have been born in Hawaii, and [this] vote makes me even prouder,” Obama said in a statement on the White House website. (National Public Radio)
While celebrations are certainly in order to mark the importance of legislation like Hawaii’s, same-sex couples have more to do than just pop the champagne. Married couples, as well as those considering marriage, should familiarize themselves with the legal benefits and obligations that come along with tying the knot. Couples that do not live in states with legal same sex marriage must also be sure they consider what legal benefits they do not have and plan accordingly.
Estate planning is especially important for adults in same-sex relationships that do not live in states with legalized same-sex marriage. Without a will or other documents explaining how you would like the disposition of your assets or choices made about your health, the court will likely, by default, hand the reins over to your biological family instead of your chosen life partner. Therefore, anybody wants decisions about their health or property made by individuals other than their biological family members should start planning right away.
Proper planning will also mean fewer disputes among your family members later. There is nothing worse than when a death causes a schism in the family over issues like property division and end of life care. (Gay & Lesbian Advocates & Defenders)
One important legal tool that is important whether or not a person marries is a will. A will is a legal document that states the way the signatory would like his/her assets distributed upon his/her death. When a person dies without a will, the state follows a set of laws that determine that distribution. If a person wants to decide for herself where her money will go she dies, a will is absolutely necessary.
The law affords the same rights to gay men and lesbians to execute wills as it does to anyone else. A court will aim to honor the signatory’s intent, so if the will is legally executed then the contester will have to show that the signatory was either incompetent when the will was signed or that the signatory signed it under undue influence or fraud.
A signed, legally executed will is the best way to ensure that proper distribution of your property upon your death. There are countless heartbreaking tales of lifelong partners with no rights to each other’s property, discovered only upon the death of one and with no way to repair the damage. To avoid suffering this kind of tragedy yourself, make sure you do the proper planning.
It is absolutely necessary for both partners to have comprehensive wills. The Illinois Probate Act sets forth the requirements for wills in Illinois. They must be in writing and signed. They must also have the signatures of two witnesses. Witnesses cannot be beneficiaries of the will. Although these may sound like simple requirements, professional legal assistance is highly recommended and does not need to be expensive. (Illinos Legal Aid)
Trusts are important legal tools in proper estate planning, especially if you want to reduce your estate taxes, protect your estate’s property and avoid probate. (Probate is the process of validating a will and administering an estate, which can keep property tied up for months and get expensive with court and attorney fees.)
Contrary to popular belief,, trusts are not only useful for affluent people. They are also suitable for parents of minors or anyone else who wants to keep their estates out of probate and ensure proper management and distribution of their assets to their chosen beneficiaries. (USA.gov)
Trusts, sometimes referred to as trust funds, create legal entities that can hold assets or property. The creator of the trust, alternately referred to as the grantor, settlor, or donor, chooses a trustee, either a person or entity, to manage it, as well as a beneficiary, the person who will ultimately get the contents of the trust. If the grantor, trustee, and beneficiary are one in the same, then that person should also choose a successor beneficiary and trustee, so that the trust benefits someone in the event of the grantor’s death. (USA.gov)
There are two main kinds of trusts: living (inter vivos) or after-death (testamentary). With a living trust, the grantor creates it with his/her attorney while he/she is still alive. A testamentary trust is one that is established after the grantor dies through a will. A living trust can be either a revocable trust, which can be changed, or an irrevocable trust, which cannot.
Choosing between a revocable and an irrevocable trust is an important decision, and one that should be made in consultation with your attorney. (USA.gov)
When you place property in an irrevocable trust that property is no longer recognized or treated as part of your estate so it will not get taxed upon your death as part of the federal estate tax. However, property in a revocable trust does not receive that same treatment
and will be subject to estate taxes upon the grantor’s death. It is important to remember, though, that the estate tax only impacts the most affluent Americans. (CNN)
Generally, a living trust will become irrevocable upon the death of the grantor. (American Association of Retired Persons)
Revocable living trusts are very popular but are not necessarily the right choice for everyone. Determining whether a living trust is suitable for you depends on your priorities, specifically, whether it is more important to you to minimize your tax liability or to retain ultimate flexibility. (American Bar Association)
Trusts can be especially useful tools for family units that do not have the ordinary protections of the law. Therefore, LGBT couples and parents should consult with an attorney about creating a trust to protect assets and limit tax liability.
3. PROBATE OVERVIEW
The term probate comes up a lot in discussions about estate planning, usually with a hint of disdain. Probate refers to the formal legal process of validating a will, as well as appointing an estate executor to administer the estate and distribute the estate’s assets. It can be a lengthy process, as well as an expensive one, because of the costs for attorneys and court fees; however, not all probate proceedings are prolonged and costly. Laws vary from state-to-state so determining whether or not a particular estate requires a probate proceeding usually involves consultation with an attorney. (American Bar Association)
Like all other areas of estate planning, the probate process may have negative impacts on non-married same-sex couples. If you live in a state without legal same-sex marriage and your partner dies without a will, the probate process will not treat you as a spouse and your rights to that property could be nonexistent. It is, therefore, strongly advised that everyone discuss the probate process with their attorney while drafting their will.
When the owner of an estate dies without a valid will, the estate will still go through the probate process, except instead of the assets being distributed according to the owner’s wishes, it will be divided according to state law. When that happens, a significant portion will be taxed and taken by the government.
The probate process varies from state, but the general process is usually the same in all states. First a personal representative, designated by the will, is sworn in. If the will does not name a personal representative then the court will appoint one. The personal representative will handle the estate’s administration. Once appointed, the personal representative will notify creditors and the public of the person’s death. The estate’s property will be inventoried to tally its total value and to ensure that the estate can cover its debts.
The probate process is also the time when the estate’s debts are paid. The personal representative will distribute assets according to state statute. Once the debts are paid, the beneficiaries named in the will receive their inheritance. (Nineteenth Judicial Circuit Court of Lake County, Illinois, AARP Crash Course in Estate Planning: The Essential Guide to Wills, Trusts, and Your Personal Legacy)
While a number of people talk about avoiding probate, it is not necessarily the right thing to do. There are advantages to probate. For example, during the probate process, the personal representative publishes a notice in the local paper. Creditors get an amount of time designated by state law to collect their debt. After that time, the estate is no longer responsible to those creditors. (Southern Illinois University)
4. POWER OF ATTORNEY FOR PROPERTY AND HEALTH CARE DIRECTIVES
As medical science advances and more cures, breakthroughs, and life sustaining technologies are developed, Americans are living longer lives than at any other time in history. However, while some people stay physically and mentally healthy into their old age, many other people lose their physical and cognitive abilities. Sadly, many people lose these abilities early in their lives as well, whether due to illness, injury or accident. In these cases, properly executed legal documents can assure the impaired person that his/her wishes for treatment are carried out. If the proper document does not exist, decisions are turned over to family members and, sometimes, the courts.
While all fifty states allow people to execute these documents expressing their preferences for medical treatment, the proper document and laws surrounding it varies from state to state. These documents allow individuals to state their desires in cases of terminal illness or injury, as well as to choose another person to act as your communicator in case you are incapable of communicating yourself. (American Bar Association)
Illinois law allows for the execution of powers of attorney to handle health care issues. These documents hand over control to make decisions regarding health care management to a designated agent. The extent of the powers handed over in the powers of attorney can be broad or narrow, depending on the specific document. Third parties, like hospitals, can rely on a power of attorney as a valid legal document and follow the decisions made by the appointed agent. (Illinois Department on Aging)
Choosing your health care agent could be one of the most important decisions you make when you are doing your estate planning. It must be a person who you trust entirely, who you know will care more about your interest than theirs, and who understands and follows your wishes. It is important that you not make this decision out of feelings of obligation or guilt. (Mayo Clinic)
Directives to Make Property Decisions
When a person becomes incapacitated, there are a number of decisions to make outside of health care as well. For example, a person’s business and property decisions also often need to be made. In Illinois, a power of attorney for property can authorize an agent to manage personal and business affairs.
power of attorney can also be used to appoint an agent to make financial and other property management decisions. A person can appoint the same person to make these decisions as health care decisions, but can also designate different agents for different issues. As with health care related powers of attorney, third parties – like banks and other business entities – can legally rely on a power of attorney. (Illinois Department on Aging)
Special Considerations for the LGBT Community
These preparations are especially important for members of the LGBT community. Although there are more and more states recognizing same-sex marriage, most still do not, so LGBT couples should clearly lay out their wishes in the proper legal documents. Those wishes can be regarding health care decisions, property and financial affairs, and other posthumous wishes like who will make his/her funeral arrangements.
Living wills and powers of attorney are powerful legal tools and should be considered when making estate plans. (Caregiver.org)
Choosing your health care agent is especially important for members of the LGBT community where same-sex marriage is not legal and will not automatically recognize your partner’s right to make these decisions.
5. ESTATE TAXES
Estate taxes may be incurred upon the transfer of property at the time of the transferor’s death.(Internal Revenue Service)
In other words, when a person dies and his/her assets are transferred either through a will or otherwise, that property may be taxed. That taxed property may be in the form of cash, securities, real estate, trusts, business interests, insurance, annuities or something else entirely. (Internal Revenue Service)
However, not everyone incurs the estate tax. It is only due on very large estates – in 2013, to incur the estate tax, the estate must have combined gross assets and prior taxable gifts of more than $5,250,000. (Internal Revenue Service)
In fact, only the wealthiest 0.14 percent of Americans will owe estate taxes upon their death. And for those people, the effective rate of the tax is still relatively low, coming out at an average of 16.6 percent. (Center on Budget and Policy Priorities)
Filing an estate tax return is usually required within nine months after the date of death. Upon request, the Internal Revenue Service may grant a six-month extension if the request is filed and the payment is made before the due date. (Internal Revenue Service)
Since the Supreme Court’s landmark decision on June 26, 2013, allowing same-sex marriage in the United States, the Internal Revenue Service has provided guidance on how the estate tax will impact the LGBT community. Federal law creates an unlimited estate tax deduction for when the dying spouse passes property to the surviving spouse, meaning that the surviving spouse does not have to pay taxes on the inheritance. The Supreme Court decision now allows same-sex couples to also claim this deduction, deferring the estate tax until the surviving spouse passes. This signified a huge win for the LGBT community. Before the ruling, same-sex couples missed out on this important legal benefit of marriage. Now, all married same-sex couples can enjoy this benefit – however, they must be married in a state that recognizes the validity of their union. (Time)
Determining whether your estate will qualify for the estate tax should be done in consultation with an attorney. Further, if you are the beneficiary of a will and you believe the inherited property may be subject to an estate tax, you should also consult with an attorney to determine your liability, and whether or not you need to file an estate tax return.
6. FINAL ARRANGEMENTS
Thinking about one’s own death is not something that most people enjoy, but planning for the inevitable event is necessary if you want to reduce the burden on your surviving loved ones. Estate planning through execution of a proper will, the creation of trusts, powers of attorney, and other documents is part of this planning. However, there will also be more immediate concerns in the aftermath of your death. The specifics of your funeral, the disposition of your body, and other final arrangements and decisions will need to be made.
In most states, you have the legal right to express your wishes in writing, and your survivors are required to follow your written preferences. In Illinois, for example, citizens may state their wishes for the disposition of their bodies in a legally binding, written document. They also have the right to appoint an agent to carry out their wishes or make the decisions him/herself. (Funeral Consumers Alliance)
During the estate planning process, people should consider their wishes for their funeral and burial (or other form of disposition). Put these wishes in writing and communicate with the person that you would like to carry them out. These conversations are understandably difficult, but having them can save a lot of distress later. Especially for people with spiritual views that are different from their families, this can be very important to prevent a conflict. It is important to leave wishes for final arrangements in writing, not in your will, which may not be immediately accessible or validated. Instructions can be left with your attorney or the executor of your estate, as well as with loved ones. Whether in personal letters or formal documents like powers of attorney, it is most important to put the wishes in writing. (Caring.com)
Some people choose to lay out very specific directions, down to the music they would like played at their memorial services. Other people provide only broad instruction and choose a person they would like to implement them. Do what you are comfortable with and be sure to discuss your plans, whatever they are, with the agent you have chosen.
For the LGBT community, making these plans in writing is especially important. In many states, the default is to hand over decisions for funerals and disposition of the body to the next-of-kin, and if you are not married, or you live in a state that doesn’t recognize the validity of your marriage, this will not be your chosen life partner, but a family member instead. (Out Front Online)
Making these final arrangements can be a painful, emotional process but that does not mean you should avoid them. They are often just as important to honoring your posthumous wishes as creating a valid will or trust.