Financial Issues in Estate Planning for LGBT Couples

Everyone benefits from estate and retirement planning, but preparing an estate plan is especially critical for same sex couples. Same sex couples must plan in the face a variety of discriminatory laws that prevent them from receiving the same benefits that married couples enjoy.

Domestic Partnership and Retirement Benefits
New York State recognizes domestic partnerships, and in some areas of New York, local governments allow both same sex and heterosexual couples to register as domestic partners. While employers are increasingly offering retirement benefits to both members of domestic partnerships, employers may still choose not to offer such benefits. Same sex couples should consider establishing a trust or life insurance plan as a backup for needed retirement income.

New York Intestacy Laws and the Importance of Drafting a Will
A Will is a critical estate planning document. Every couple should, at a bare minimum, have a clear Will expressing how assets should be distributed after each partner passes.

When an individual dies without a Will, that person is said to have died “intestate.” In this situation, all assets will be distributed by the state to beneficiaries according to previously determined formulas. Although New York recognizes same sex domestic partnerships, state intestacy laws do not provide inheritance rights to domestic partners. Therefore, if no beneficiary is explicitly named, assets intended for a lifelong partner may be distributed to other relatives and, potentially, to the state. For this reason, it is important for all same sex couples to draft a Will, regardless of age or income level.

Understanding Social Security Benefits for Same Sex Couples
Social Security is a federally run program, and federal law determines eligibility and benefit rules. Since the Defense of Marriage Act (“DOMA”) forbids the acknowledgement of same sex marriage, regardless of state law, same sex couples face discrimination in the application of Social Security benefits.

Same sex couples are not eligible for Social Security spousal benefits. When two married individuals retire, the spouse with the lower monthly benefit can choose to take either their own benefit or one half the higher-earning spouse’s benefit, whichever is greater. For example, if one member of a married couple qualifies for a yearly benefit of $13,000 and the other for a yearly benefit of $5,500, the lower earning spouse could instead choose to receive $6,500 as a spousal benefit. A lower earning member of a same sex couple does not qualify for the higher benefit.

Same sex couples are also not eligible for survivor benefits, through which a surviving spouse may qualify for the higher-earning spouse’s benefit after s/he has passed away. Legally adopted minor children, however, are eligible for survivor benefits. Since New York law permits single, joint and second-parent LGBT adoption, same sex couples can and should take advantage of the law and legally adopt any minor children to whom they are not biologically related.

Tax Planning for Same Sex Couples
Several provisions in federal tax law shift a heavier tax burden to same sex couples. Same sex couples cannot file “joint” or “married, filing separately” federal income tax returns and may pay more in yearly income taxes as a result. Same sex couples are also not eligible for the federal estate tax exemption or for the unlimited gift tax exclusion for gifts between spouses. For these reasons, consulting with an estate planning attorney about tax planning is especially important for same sex couples.

Transfer of Property Between Partners
When a couple owns a home or a New York City co-op apartment that piece of property is legally held as a “tenancy by the entirety” if the couple is married. This means that each spouse owns 100 percent of the property. When one spouse dies, the property is transferred tax-free to the survivor, since by law, that individual already owned 100 percent of the property. Same sex couples do not enjoy this legal protection. The only way for same sex couples to achieve a similar benefit is to hold the property through a joint tenancy with right of survivorship. Property-owning same sex couples should consult an attorney and consider this option.

Because federal laws differ from state laws, and state laws may differ dramatically from state to state, it is particularly important for same sex couples to consult an experienced elder law and estate planning attorney who is familiar with relevant laws and regulations. A good estate plan can help same sex couples avoid some of the discrimination written into the law and provide for a more stable financial future.