Everyone needs an estate plan! This goes for if you’re a young professional or have minor children or are retired. And, it goes for all married couples!
This year marks a decade since Iowa Supreme Court decision of Varnum v. Brien, which legalized same-sex marriage in the state. This case was a precursor and set a standard echoed subsequently in other states and eventually at the national level. The Supreme Court’s opinion in Obergefell v. Hodges, which legalized same-sex marriage was a major win for both LGBTQ and human rights.
The 10-year marker of the Varnum decision reminded me that Obergefell had an enormous impact on estate planning. With same-sex marriage now recognized across the country, it opened a multitude of previously unattainable tools and tax-savings that come along with a legal and recognized marriage. Yet, same-sex couples still may have situations that require extra or special planning. You may be surprised to learn that It can’t be it covered by a single article, so I’ll hit the high points. Here are five considerations for same-sex spouses engaged in estate planning.
Unlimited Marital Deduction
The unlimited marital deduction is a money-saving must for all married couples. The unlimited marital deduction is an essential estate preservation tool because it means an unrestricted amount of assets can be transferred (at any time, including at death) from one spouse to the other spouse, free from taxes (including the estate tax and gift tax). Prior to Obergefell, same-sex couples had to depend on their individual applicable exclusion in order to provide for a surviving partner.
(Note that the marital deduction is available only to surviving spouses who are U.S. citizens. If your spouse is not a U.S. citizen, look at other tools, such as a qualified domestic trust (QDOT), which may act to minimize or eliminate taxes.)
Guardianship of Minor Children
A will is so critically important for several reasons, including the fact a parent can make a designation of guardianship for minor children should something happen to the parent while the child is still under age 18. Without a will, no guardianship can be established, and Iowa Courts must choose guardians. Unfortunately, with no clear evidence as to what the former caregivers would have preferred, the Court must make its “best guess” as to who the parents would have preferred and what would be in the best interest of the child. The Court may, or may not, choose who the caregivers would have named.
Establishing guardianship is SO important for all parents, but especially so for same-sex parents. The legal relationship between a minor child and a parent in a same-sex marriage should specifically be identified in the estate plan. Additionally, if only one spouse is currently the natural or adoptive parent of a minor child, the spouse of the said parent should consider adopting the child to legalize the relationship. Without this officially established relationship, the death of the adoptive/natural parent could open the door for a custody battle with the deceased’s family or the child’s birth parents. To avoid litigation (and avoiding litigation in estate planning is always a good idea), co-parent adoptions protect each parent’s rights regarding guardianship.
If adoption isn’t on the table, it’s smart to create a trust with specific provisions for the relationship between the non-legal parent and the minor child if someone else were to become the guardian.
(Expert advice: The adoption tax credit is not available for a spouse adopting a spouse’s child. If adoption is in the plans it may be financially advantageous for the adoption to take place prior to marriage.)
Give Your Assets to your Child(ren)
Adoption also plays an important role not just in guardianship but in the passage of assets. Typically, when parents die their assets are passed on to their child(ren). If this is indeed an estate planning goal for a same-sex couple, adoption should definitely be considered since it’s more common in same-sex marriages for only one parent to be biologically related to the child.
The term for adoption by a spouse (without the “first parent” losing any parental rights) varies from state-to-state and can be called second-parent adoption, co-parent adoption, stepparent adoption, or confirmation adoption.
Once an adoption is final, an adoptive parent has all the permanent legal rights and responsibilities of a parent-child relationship, exactly the same as that of a birth parent.
Without the legal determination and an estate plan the child(ren) may not get anything as the couple’s assets could flow instead to other family members.
For all the aforementioned considerations and more, it’s smart for all couples, but especially same-sex couples, to avoid the DIY online estate plan templates. Most of these services don’t include the specific provisions and important estate plan needs of LGBT couples. Seek out a lawyer with ample experience in estate planning who understands the potential legal challenges your estate could face so they can adequately protect your assets from potential peril. For instance, if you think the situation could arise where family members who disprove of the marriage or decisions regarding the estate could create future conflict, your lawyer should be able to advise on how a “no contest” clause to be incorporated into the estate plan.
As stated before, given the tax-saving tools that marriage provides, it’s nothing but beneficial to review any and all existing estate plan documents of each spouse. (Married couples often seek joint representation in estate planning, but individual representation can help couples avoid conflicts of interest.)
In your estate plan review confirm that definitions accurately reflect relationships with verbiage such as “spouse,” “children,” “husband,” “wife,” and the like, so there’s no ambiguity when it comes to execution of the plan.
Following marriage, it’s also a good idea to take a look at re-titling property (such as a home) from sole ownership to joint tenancy. This means that if one spouse were to pass, the other would get the property without it passing through probate. (Depending on your situation, you could also consider “tenancy in common” as another option for holding property titles under multiple names.)
Additionally, don’t forget to check your beneficiary designations on accounts such as savings/checking, insurance, 401k, and retirement benefits, as these designations actually trump your will.
Ask your professional advisors—lawyer, financial advisor, insurance agent—to help you maximize your money-saving benefits when it comes to gift, income, and federal/state estate taxes.
You’ve worked hard for the assets you’ve built and the property you’ve acquired. Almost assuredly you want these assets to pass to the ones you love—the ones you’ve built a life with and around. Don’t let legal loopholes, family members that will never fully understand that love is love, or guardianship issues get in the way you crafting your legacy. It’s never too early to get started on your estate plan (with my free, no-obligation) estate plan questionnaire. I’m always happy to discuss the topic over the phone (515) 371-6077 or via email.