Twenty years ago, America’s first state-sanctioned same-sex marriage took place in Massachusetts. New research from the Rand organization suggests that the legalization of same-sex marriage has been broadly positive for gay and straight Americans alike. In fact, in states that legalized same-sex marriage, LGBTQ+ people showed higher levels of health insurance coverage, higher earnings, and greater rates of home ownership (WSJ).
Of the 1.2 million same-sex couple households in the United States measured by Census Bureau data in 2021, about 710,000 were married and about 500,000 were unmarried. Not long ago, same-sex couples, transgender folks, and other queer-identifying individuals and couples were not seen as entirely equal under the law, especially with respect to marriage, civil unions, and domestic partnerships. Thus, LGBTQ+ folks require more intricate and nuanced planning.
The historic Supreme Court decision in Obergefell v. Hodges to legalize same-sex marriage in all 50 states (and recognize out-of-state marriages) meant that planning for married same-sex and LGBTQ+ couples now looks largely similar to that of any other married couple. Significant progress has been made to level the playing field.
However, issues persist.
There are still many situations, like adoption, second-parent adoption, and recognition of non-married partners, that require careful consideration and urgent attention. So, whether LGBTQ+ or not, married or not, it is imperative you prioritize your tax and estate planning so your wishes are met and executed.
Update Outdated Beneficiary Designations
An easy first step in your estate planning is checking your beneficiary designations. Most likely, you set them at your bank accounts, retirement accounts (401(k), 403(b), IRA, Roth IRA), HSA accounts, brokerage accounts, deferred compensation packages, annuities, and life insurance policies.
LGBTQ+ folks are uniquely “disadvantaged” here. The legal proceedings of a divorce often provide a natural point for people to remove ex-partners as beneficiaries and reevaluate their designations. However, prior to the Supreme Court ruling in 2015, breakups for LGBTQ+ couples did not include the built-in reminder to unwind assets and beneficiaries through divorce. Take an inventory of all your accounts and check that designations are set to your wishes.
Create a Will
One of the primary challenges in estate planning for LGBTQ+ individuals is ensuring that your assets are distributed according to your wishes. A will or revocable living trust is the heart of any estate plan. With a will, you can:
- Determine who will inherit your assets.
- Nominate a guardian for your children.
- Arrange for an adult to manage any assets children inherit.
- Name an executor.
Without a will, your state’s laws of intestate succession will determine who inherits from you. If you are in a long-term committed relationship or domestic partnership but not legally married, your partner may not automatically inherit your assets without a will in place. Domestic partners are rarely included in the state statutes and will likely be disinherited, regardless of your intentions.
Avoid Probate
Privacy cannot be understated or undervalued. Probate is the lengthy and expensive court process of closing your estate after you die. It is all public record, and rarely does it benefit your heirs. For unmarried couples, avoiding probate can be more challenging since they can’t take advantage of laws that allow property and investments to pass to spouses outside of probate. Ways to avoid probate:
- Revocable Living Trust
- Transfer-on-Death Accounts
- Beneficiary Designation on Retirement Accounts
- Joint Ownership or Joint Tenancy
Name Your Decision-Makers
End-of-life care is a critical component of your estate plan. Preparing these steps in advance will help minimize the acute stress you may be feeling. Health care directives are named individuals who can help execute your wishes if you can’t speak for yourself. A financial power of attorney gives another person legal control over your finances. Individuals named as your health care directives and financial power of attorney can – but do not have to – be the same person.
Health Care Directives: Named individuals who can help execute your wishes if you cannot speak for yourself.
- Living Will or Declaration: You state what kind of end-of-life care you want or don’t want. This is public record.
- Health Care Power of Attorney (POA): You name a person to make health care decisions for you, if necessary. This person can remain out of public record.
- HIPAA Privacy Authorization – You name someone with whom doctors and healthcare providers can discuss and disclose your health condition and records, pre- or post-death, to execute your wishes.
Financial Power of Attorney (POA): You name someone to make financial decisions for you, if necessary. This person can remain out of public record.
By designating your partner in your health care directives and as your financial POA, you give them the legal authority to make medical and financial decisions on your behalf. This is especially important if your family is unaware of, or has not fully accepted, your relationship. For same-sex and queer-identifying couples, clarity of your wishes is paramount.
Hold Property Titles Appropriately
Real estate is often a significant portfolio position for LGBTQ+ and same-sex couples. How couples hold title to their real estate is particularly important to review:
- Joint Tenancy with Right of Survivorship (JTWROS): Avoids probate; immediately passes to the surviving owner/spouse when one owner dies.
- Tenancy by the Entirety (TIE): Avoids probate; same rights of ownership as joint tenancy, but can be used only by married couples (or, in some states, by same-sex partners who have registered with the state).
- Community Property with Rights of Survivorship: In community property states (AK, AZ, CA, NV, WI), property title held in one spouse’s name is immediately transferred to the surviving spouse upon the owner’s death.
- Tenancy in Common (TIC): Does not avoid probate; property interest is owned individually, often unequally.
Stay tuned for my next blog which will review Tax Planning for LGBTQ+ Couples. As always, if you have specific questions about your circumstances, you can contact me at ben.galloway@greenspringadvisors.com.
