CA Estate Planning

GAY & LESBIAN ESTATE PLANNING

In honor of Gay and Lesbian Pride Month, AARP has launched a new portal within their website dedicated to LGBT elders. The portal is designed to accommodate and offer advice on the many issues that affect LGBT elders, from the mundane to the far more troubling legal and economic wrinkles. The portal includes advice about concerns regarding estate planning as well as caregiving. For a greater understanding of the nature of the associated issues and legal wrinkles, the site includes a list of upcoming hurdles compiled by Michael Adams, of the SAGE advocacy group.

For more answers to your Estate Planning questions please visit our website. This blog is intended to provide general information only and is purely a public resource (See website disclaimer).

ESTATE PLANNING / SAME-SEX COUPLES

Unmarried couples are a growing part of our population, and with them the growing controversy over their legal rights as couples. If the government doesn't recognize a relationship, taxes, estate planning, buying property, and dividing assets after a breakup all get messier—and pricier. And, as Bloomberg Businessweek recently pointed out, the number of unmarried cohabiting couples has surged, meaning millions more Americans, gay and straight, are facing these issues. The U.S. Census Bureau estimates 7.5 million heterosexual couples and 620,000 same-sex couples lived together in 2010, compared with 6.7 million heterosexual couples and 476,000 same-sex couples in 2009.

The lack of a legally recognized union or marriage has always been a problem in the event of dispute or estate transfer. But with new laws and court rulings increasingly recognizing the rights of live-in couples, rapid change is also making the legal and financial status of couples more confusing.

"It's a changing area of the law,” according to Linda Lea Viken, attorney and president of the American Academy of Matrimonial Lawyers. “ Some places are becoming more hostile to same-sex relationships. Others are becoming more liberal."

This is especially important for same-sex couples, and estate planning is one of the thorniest issues. There are many tax advantages enjoyed by married couples, which simply are not available to those whose unions are not legally recognized. And, even if you are “legally married” in one state, don’t think your problems are solved. You can still face difficulties, especially if you move to a state that does not recognize your marriage.

Whether gay or straight, non-traditional couples need to take a serious look at the legal and economic realities they face. “It's dangerous to leave matters like custody of your children or holding on to your home to non-specialists, says Howard Forman, an attorney at Turkel, Forman & de la Vega in New York. “It's heart-wrenching when you see people who think they are protected and they're not.”

For more information on GLBT Estate Planning issues please visit our website.

ESTATE PLANNING: WHY YOU SHOUDN’T AVOID IT

It certainly is understandable that no one enjoys a conversation about death – especially their own! And, with the estate tax exemption now set at $5 million for an individual and $10 million for a couple, many people may believe they have no reason to consult an attorney about their estate planning. But avoiding the topic of estate planning can mean unnecessary expense, confusion and conflict.

SmartBusiness last week highlighted the fundamentals of a “well-thought-out estate plan,” with topics that everyone should consider – whether prince or pauper.

• Why do you need an estate plan? A comprehensive estate plan ensures that when you die your estate is distributed according to your wishes, it protects you in the event of your own disability, and allows you to plan for minor children, pets, and charitable causes.
• What are the basics everyone should have? SmartBusiness (should be hyperlink as above) recommends at a minimum a power of attorney for healthcare and a living will.  In California where I practice law these documents are combined in an Advance Health Care Directive. This Directive is critical should you become ill and unable to make your health care wishes known.   Your appointed health care agent can make sure your wishes are followed.  Also strongly recommended is a Power of Attorney for Finances and Personal Affairs.  This allows whoever you appoint to pay the mortgage, utilities and take care of your cat if you are unable to do so for yourself.  In my experience, people in hospital without such a Power, are often more worried about such matters than their illness! 
• What about a will? Absolutely, you should have one, otherwise the State where you live will distribute your estate according to its probate rules, which may not reflect your wishes.  You certainly can write your own will and there are many online sites to help you do so! However, as in most things of life, you do get what you pay for. Improperly drafted or last-minute, hand-written wills are frequently contested and invalidated in court. If you don’t know what you’re doing, the outcome could be much different than you expect.
• What about trusts? Many people choose to create trusts to help their heirs avoid the time, expense and lack of privacy in probate proceedings.  A trust can help reduce estate taxes if applicable to you,  Trusts also can help shield assets from spendthrift children, divorce, children of a second spouses, and other unforeseen circumstances, such as lawsuits against your heirs.
• What mistakes to people tend to make in estate planning? The writer points out two common mistakes: failure to plan for their personal effects which can lead to more family disputes than the distribution of money, and failure to review and update estate plans over time.

You can learn more about comprehensive estate planning in the Grain Law FAQ's section of our site.

 

PROTECT YOUR CHILDREN FROM SQUANDERING THEIR INHERITANCE. INCLUDE A CHILD’S TRUST IN YOUR ESTATE PLAN.

Many parents are concerned that their children or grandchildren might squander their inheritance if they receive it when they are too young to appreciate its value.  It is therefore not uncommon to put such inheritances into children’s trusts to limit the age at which the child receives the capital outright, and sometimes even limits the income paid to them.

It is quite common now for a child to receive an inheritance in three stages: at age 25, 30 and 35.  A trustee appointed for the purpose, usually has a wide discretion whether to make advance payments out of the trust’s capital where circumstances suggest it is right to do so.  For example, if a child is married and wants to buy a house before the trust is due to make a payment of capital outright, the trustee can decide to distribute the down-payment on the house.

Often, the trustee has the discretion to distribute all the funds outright if he or she considers the child is mature enough to manage a large sum of money.  Other times, a child might be appointed co-trustee of his or her trust, or even replace the original trustee at a certain age.  There are often advantages in leaving a child’s inheritance in trust for life.  This can provide many protections, for example if the child divorces, the ex-spouse cannot access the trust fund in a divorce settlement.

There are other strategies to consider if the estate is over the estate tax exclusion (currently $5 million, and $10 million for a married couple). The greatest inheritance protection is achieved when the estate plan creates a Long-Term Discretionary Trust to administer the inheritance for the children. Such an arrangement can make both income and principal available to the children for their health, education, maintenance and support, as well as for any purpose deemed appropriate in the discretion of your appointed inheritance managers. This can have favorable estate tax consequences.

You can learn more about Long-Term Discretionary Trusts and other estate planning strategies in the July issue of our estate planning newsletter, Majoring in Minor Children (this link is to Kyle’s website.  We should have the same newsletter on our site). Be sure to sign up to subscribe to our free monthly e-newsletter, which is full of estate planning tips for you and your family (ditto).

Call (877)-858-4724 or Email richard@grainlaw.com to schedule your free consultation today.

 

ARE YOU, YOUR FRIENDS OR CLIENTS IN A CALIFORNIA REGISTERED DOMESTIC PARTNERSHIP? THEN READ ON.

If you are in a California registered domestic partnership (RDP) you should know about a little-publicized IRS announcement last year. Starting with 2010 Tax Returns, the IRS will treat 2010 income earned by both partners in an RDP* as community property, thus applying the “income-splitting” rules until now only applicable to the community property of different sex couples. 

Mandatory for 2010, the IRS requires that all income earned by both RDP partners treated in California as community property must now be added together and allocated equally to each partner’s federal tax return.  Unlike different-sex couples, RDPs must continue to file separate federal tax returns.

This could have a major impact on the amount of income tax owed by the individual partners.  It makes the preparation of 2010 federal tax returns for RDPs even more complex than before requiring a tax professional with experience in preparing LGBT tax returns to determine how the new IRS position will affect them. For CPAs in Los Angeles known to have experience in preparing LGBT returns, visit the following websites (David Paddock’s and William Hurtt’s websites)

It should be noted that the change in treatment only applies to community property and not the separate property of each party.  Determining what is separate property is not always an easy task, and an attorney or tax professional should be consulted where classification is difficult. 

As a consequence of the new IRS treatments, LGBT couples contemplating registering as domestic partners may want to consider beforehand whether they should enter into a pre-partnership agreement to have their incomes treated as separate income if registration would have a negative impact on their tax positions.  For those RDPs who are greatly affected by the new IRS rules may want to consider a post-partnership agreement, although they raise several critical issues. 

For more information on such agreements, contact Richard Grain, an attorney focusing on the LGBT community, at richard@grainlaw.com.

* NOTE: the new IRS position although it does not mention them will probably apply to California same-sex married couples as well.