Estate Planning for Same-Sex Couples: What You Need to Know

Posted

Making sure your partner will be taken care of in case something happens to you is one of the most loving things you can do.

While estate planning is important for all couples, it is essential for same-sex couples (or for couples who decide not to marry), because they do not have many rights married couples take for granted—even if their state allows them to marry. “Federal law trumps state law,” Miami-based financial planner Cathy Pareto tells LearnVest. “And in the eyes of federal law, if you’re a same-sex couple, you are not related—you are basically strangers.” (For this reason, tax planning for gay couples is also tricky. Learn how to navigate tax time.)

Of course end-of-life planning can be daunting enough as it is. And the wide variance in the way states recognize gay couples and ongoing court challenges to the 1996 federal Defense of Marriage Act (DOMA) make same-sex couple estate planning especially complex. But we’ll walk you through the best ways to help protect the life you build together. (One note: While this article is specifically for same-sex couples, much of the information is also relevant to couples who decide not to marry.)

Medical Care

Possible problem: Married partners are considered each other’s next-of-kin. But for a same-sex couple, if one partner becomes incapacitated, the other may not get any say in what medical care she should receive. And if one partner dies, the second partner may find herself shut out of planning the funeral. These issues can be especially thorny if the first partner’s family didn’t know about or approve of the relationship.

Smart Solution: The best way to ensure that your wishes will be honored should something catastrophic happen is to put them in writing now:

  • A living will provides clear instructions for various medical situations—such as whether you should be given CPR or a breathing tube.
  • Durable powers of attorney are legal documents designating other individuals to act on your behalf should you become incapacitated. A durable power of attorney for health care is often also referred to as a health care proxy and grants a trusted designee the ability to make decisions for you about medical matters that aren’t already covered in your living will. A “springing” durable power of attorney allows you to select someone to make financial decisions on your behalf, but only “springs” into effect should you become incapacitated.
  • You can also leave directions about final arrangements and who should handle them to help prevent conflict and make things easier for grieving loved ones. Experts say your wishes should be set forth in a separate document from your will since the will may not be read until after funeral arrangements need to be made.

Asset Distribution

Possible problem: You may want your partner to get what you leave behind, especially if her income is less than yours, but family members can also claim these assets. This could especially be an issue if you have children from a previous relationship.

Smart solution:

  • Both partners should make wills clearly specifying who will get each of their assets.
  • This option can be pricey, but ideally each partner should also create a revocable living trust. Like a will, a living trust is a legal document that spells out how assets should be distributed. Partners transfer ownership of their assets—such as a house—to their trusts, and they retain control of them during their lifetime. While a will may have to go through probate, a sometimes lengthy process by which the estate of a deceased person is settled by a court, a living trust simply passes to a designated successor trustee upon death. Because the court does not get involved, the trust remains private and is difficult to contest; these qualities make it especially appealing to many same-sex couples.
  • Clearly designate your partner as beneficiary on all your investments, including savings, brokerage and retirement accounts. Contact your bank, brokerage firm or human resources department to fill out the necessary paperwork.
  • For real estate, opt for the title “joint tenants with rights of survivorship” (if allowed by your state) on the deed if you want the property to pass onto your partner instead of a blood relative.