Estate Planning for the LGBT Community

By E. Thomas Moroney (Nov. 2014: also available as a printed pamphlet upon request)

ESTATE PLANNING FOR THE LGBT COMMUNITY is, in many ways, no different from estate planning for anyone else.

— Estate Planning is essential if you want to direct how your estate is to be distributed upon your death. If you do not make those choices, the state has, through its rules governing intestate succession.

— Estate Planning will make it easier, cheaper and faster for your beneficiaries to administer your estate. While you may not be around to enjoy those benefits, your beneficiaries will appreciate your efforts.

— Estate Planning can make it easier to cope with your or your partner’s illness or incapacity.

— And, if you are very wealthy, Estate Planning may generate some tax benefits for your estate.

While much has changed in the last couple of years with respect to LGBT rights, there remain a number of issues that make Estate Planning particularly valuable to the LGBT community.

— LGBT couples who are not married or domestic partners often want their partner to receive all or part of their estate. That will not happen without some form of Estate Planning. Those couples also may anticipate that their partners will handle their financial affairs should they become incapacitated. That can be difficult without some planning.

— Even LGBT couples who are married (or domestic partners) often will have substantial separate property (property acquired before marriage, or by inheritance or gift during marriage). In the absence of estate planning, a portion of that separate property may not pass to the spouse or partner.

— Some LGBT singles and couples have families who are not supportive of them or their partners. Proper Estate Planning can protect the surviving partner and intended beneficiaries from nightmare scenarios where the deceased partner’s parents or siblings show up at the survivor’s doorstep and demand all the deceased’s property, including clothes, vehicles and personal effects. The surviving partner can “shoo” the unwelcome visitors off the doorstep, but without some Estate Planning, those next of kin will come back. Proper planning also lessens the odds that your beneficiaries will face a will contest or other probate proceeding.

— Unmarried LGBT couples (or those not in a domestic partnership) raising children together often want the surviving partner to continue raising the child. But if the surviving partner is not a parent and is not nominated as guardian in your estate or other paperwork, another adult may end up with custody of the child.

— LGBT singles and couples often have strong preferences as to who should be permitted to see them should they become hospitalized, and who should be making medical decisions on their behalf should they be unable to do so for themselves. This is important even for married LGBT couples should they face a medical emergency in a state that does not recognize their marriage. Proper planning can protect your wishes.

— The same issue arises with respect to burials or cremation. In the absence of planning, those choices will be made by next of kin, which may not be what you want and could be quite upsetting to your partner.

IF YOU DO NO ESTATE PLANNING, WHAT HAPPENS? IN CALIFORNIA:

— The rules of intestate succession (dying without an estate plan): Upon your death, your children will inherit your property; if you have no children, your parents are next in line; if your parents have passed, your siblings (or their children) will inherit your property; if you have no surviving parents, siblings, nieces or nephews; your grandparents will inherit your property; if your grandparents have passed, your aunts, uncles, and cousins are next in line.

Simple animated scenarios of intestacy in California:

Married couple: no estate plan

Single, never married, no children: no estate plan

— If you become incapacitated and unable to take care of your financial affairs, someone may have to petition for a court order appointing a conservator, likely to be a relative.

— If you become medically incapacitated and unable to make medical decisions, the situation can become fairly fluid with the health care provider looking to family or other adult with authority. The traditional default rules look first to spouse, and then to adult children, parent(s), and adult siblings, in that order.

— The disposition of your remains will be controlled by the same group of people, in the same order: spouse, adult children, parent(s), and then adult siblings.

Notably missing from those scenarios? Your partner, cherished friend(s) or someone else you want to inherit property or to be making decisions for you.

Hopefully if you have read this far, you see some value in Estate Planning. So what are your options?

ESTATE PLANNING TOOLS:

Direct Beneficiary Designations: There are a couple of things you might do that do not require a will or a trust.

For financial accounts, you can set up payable on death accounts at your bank, and designate beneficiaries on other retirement or investment accounts. Upon your death, the bank or financial institution will follow those instructions.

For real property, you can hold title in joint tenancy with a right of survivorship. Upon your death, the joint tenant “inherits” the property.

While these steps can be effective. They have their limitations and are not substitutes for a more complete estate plan.

Using direct beneficiary designations for financial accounts is effective; but many people do not keep those designations current, and often fail to make designations when new accounts are open. Direct beneficiary designations also can cause problems.

Direct beneficiary designations trump a will or trust. Upon death, people sometimes find that the decedent has direct beneficiaries that are different from those named in the will or trust, and which are clearly inconsistent with the decedent’s wishes. This is not an uncommon problem, particularly where the accounts are old and have beneficiary designations that were never updated, or where the person has divorced or is now with a new partner. Unfortunately, those beneficiary designations will control, no matter what the will or trust says.

Holding real property in joint tenancy is effective for couples that want to ensure that their partner takes ownership of the property should they die. It is not effective if you have other plans for the property; e.g., some couples want the survivor to live in the property during his lifetime, and upon the survivor’s death, want surviving family members to inherit the property; other couples may want the property sold with the proceeds being shared by the surviving partner and others.

And neither direct beneficiary designations nor joint tenancy will help with the disposition of many of your personal effects, e.g., clothes, art, photographs and furniture.

As a result, proper Estate Planning requires a will, and for many people, a trust.

The Will is the central estate planning document. It is often fairly simple, and generally appropriate for individuals who are healthy, younger, not in a long-term relationship, and have less than $150,000.00 in assets.

In the will, you will appoint an executor to handle the disposition of your estate. You will identify your beneficiaries: who is to receive what from your estate assets. Your will might also setup other instructions. For example, if you have minor children, you will want to state your custody preferences. You also may not want a particular beneficiary to receive the inheritance until a certain age, or otherwise restrict use of that inheritance.

A will avoids having your estate distributed according to the default rules of intestate succession.

A will, however, does not avoid probate. In California, estates valued at more that $150,000.00 generally are required to be probated. Probate is a court proceeding
that winds up your estate and supervises the executor’s actions. The court will see to it that the wishes set forth in your will are followed. But probate administration will take at least one year, and it is not inexpensive. The court has a schedule that sets attorney and executor fees based on the estate’s value. For a $150,000.00 estate, you can expect to pay $11,000.00 for the attorney and executor (combined). For a $1,000,000.00 estate, the schedule sets a $46,000.00 fee.

Probate also makes it easier for someone to contest the will. For many in the LGBT community, the last thing they want to do is to simplify the process by which a will contest can be launched.

The Trust, like the will, directs the distribution of your estate. A trust has additional advantages. A trust avoids probate, can accommodate far more flexibility in your Estate Planning, and provides a central document to address disposition of your estate assets, incapacity and other issues such as custody of minor children.

The basic Estate Planning trust is revocable and names you, or you and your partner or spouse as the trustees. It is paired with a “pour-over” will that directs that any non-trust assets are distributed to the trust.

With a trust, you control your assets exactly as you do now and, until the death of a trustee, you can revoke or modify the document.

You will name a successor trustee to act as administrator of your trust – the same role an executor plays in a will. If you are creating a joint trust with your partner or spouse, you and your partner or spouse will be the initial trustees and you will name a successor trustee to act once you both pass. You can set up the trust so that the successor trustee also steps in to handle your financial affairs in the event that you become incapacitated.

The only day-to-day differences you will see with a trust is that all of your assets will be held in your or your and your partner/spouse’s names as trustee(s). So you will be opening new accounts in the trust name, and transferring your existing accounts into the trust. Real property also may be titled in the trust name.

While that will sound daunting to some, it is not a difficult process. Most financial institutions and title companies are familiar with holding assets in a trust, and your lawyer can facilitate those transfers.

To summarize, with a trust:

— You generally will avoid the expense and delay of probate.

— You will have greater flexibility in directing the disposition of your estate assets.

— You will have created a vehicle that will permit your partner or spouse to handle your affairs in the event of your incapacity.

OTHER ESTATE PLANNING TOOLS

An effective plan generally also includes an Advance Health Care Directive and sometimes a Durable Power of Attorney for financial affairs.

The Advance Health Care Directive designates an agent to make health care decisions for you in the event that you become incapacitated and are unable to make those decisions for yourself. For LGBT couples who are not married or are not domestic partners, this document is important. It can put your partner in the role of decision maker as opposed to having health care decisions being made for you by your next of kin. This is not a complicated or difficult document to prepare, but it can avoid many problems in the event that you have a serious accident or become seriously ill.

The Durable Power of Attorney appoints an agent to handle your financial affairs. It typically also is triggered by your becoming incapacitated. A trust usually eliminates the need for a financial power of attorney because your successor or co-trustee is typically given those powers in the event of your incapacity. For those who do not have a trust, however, a financial power of attorney may be useful. A financial power of attorney also may be useful in a number of non-estate planning settings.

If you have questions or wish to make an appointment, please contact me.

Law Offices of E. Thomas Moroney

811 N. Catalina Ave., Ste. 2206
Redondo Beach California 90277
(310) 318-1400

777 E. Tahquitz Canyon Way, Ste. 200
Palm Springs, California 92262
(310) 318-1400

www.etmoroneylaw.com