The Obergefell decision of 2015, which legalized gay marriage in all 50 states including Texas, greatly impacted estate planning for same-sex couples. Married gay couples are now able to take advantage of the estate planning techniques that had previously only been available to heterosexual married couples. However, despite the change in the law, a smaller percentage of gay and lesbian couples are married compared to straight couples, according to this article. This results in unique estate planning challenges for many same-sex couples.
There are three estate planning issues to consider:
A will is essential…
Without a will, you will have little control over how your assets are divided or who the guardians of your minor children will be. Assets that have a beneficiary designation, such as life insurance policies, will be distributed according to the designation, but other assets will be distributed according to the intestate succession laws of your state. Intestate succession laws generally do not provide for an unmarried partner, even if the relationship was of long standing.
…but merely having a will may not be enough
You may also consider transferring assets to a living trust, which can help your heirs avoid probate and plan for possible future incapacity.
Additionally, legal battles can arise with regard to making medical decisions when you are incapacitated. While your spouse has priority in making medical decisions in Texas, any dispute has to be resolved by a court. Family members other than spouses may sometimes different in their judgment of the best interest of the patient. Additionally, a non-spouse partner has no right to make medical decisions absent a properly executed Medical Power of Attorney. A properly executed Medical Power of Attorney can clarify who has the authority to make medical decisions on your behalf.
It’s also important to review beneficiary designations for all of your accounts. For retirement accounts especially, the distribution of funds is governed by the beneficiary designation on file with the investment company, not your will. It’s important to note that spousal consent is often required if you want to name someone else as the primary beneficiary of the policy.
Walk down the aisle, or not?
There are important differences in estate planning and administration if you are a married or unmarried same-sex couple.
Spouses who are U.S. citizens can pass all assets to the surviving spouse free of federal estate tax.
Additionally, married couples, whether same-sex or not, can take advantage of “portability” of unused estate tax exemption. This feature allows married couples to share their estate tax exemptions. Upon the death of the first spouse, the surviving spouse may file an IRS election to retain the unused exemption of the deceased spouse. As an example, if Spouse A dies in 2019 and has an estate of $5 million, then Spouse B may have a $20 million exemption ($11M for Spouse B plus $9M unused by Spouse A). Note that portability is not automatic; it must be elected by filing an estate tax return (Form 706) with the IRS.
On the other hand, if A and B were not married when A died, it would not be possible to “port” A’s unused exemption, resulting the possibility of additional estate taxes upon B’s death.
A surviving spouse can combine a deceased spouse’s IRA into his or her own through a rollover. Required Minimum Distributions are then based on the surviving spouse’s age. (Distributions can begin at age 59 ½ and must begin no later than 70 ½.)
If you inherit an IRA from someone other than a spouse, you cannot combine it with your own IRA. Further, you will be required to begin taking distributions the year after the death.
A spouse with a low Social Security benefit is able to “step up” to his or her spouse’s higher benefit at the time of death.
In contrast, each unmarried partner can collect the benefit only based on his or her own salary history.
If you pass away with a mortgage on your home, there are important differences if you are married or not. A surviving spouse whose name is not on the title and mortgage will not be asked to repay the outstanding mortgage at the time of death. He or she will, however, be required to continue making payments on the mortgage.
If you are not married and your house passes to your partner, he or she will often be required to pay off or refinance the mortgage after your death.
Whether you are married, single, LGBTQ or straight, there are important estate planning considerations unique to each family. An experienced estate planning attorney can help guide you through the estate planning process to create an estate plan that addresses your specific situation.
Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.