Estate planning for gay couples |
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A bridge
guardian. If your state doesn't allow unmarried couples to
be co-parents, the kids could end up in temporary state custody
after the legal parent dies and before the courts decide permanent
custody. Often you can avoid this by naming a temporary or "bridge"
guardian, who will look after the children in the interim.
Funeral
arrangement documents. "You have to designate who's
taking care of funeral arrangements," says Buckel. "There
are many cases where the partner is shut out of the process and
not allowed to participate."
A living
trust. You set this up and, while you're alive, transfer
into it any assets you want to leave. While you're around, the trust
"owns" the assets, but you control the trust. When you
die, the person you've named as trustee passes them on to whoever
you've named as the beneficiaries (and in most places you can name
your partner as both trustee and beneficiary.) You do have to remember
to transfer assets into it, which involves some paperwork. And it
won't lighten the load when it comes to estate taxes.
Because assets are outside the will (and probate),
it's private, and trusts are difficult to challenge. You can also
make changes if you want. If you're leaving money to minors, you
can create rules governing its use.
A testamentary
trust. Testamentary trusts are much like living trusts, except
they only come into being after you die. So while you're alive,
you "own" your assets. When you die, a list of specific
assets you've designated go into the trust.
Lifetime
gifting. You can give away $1 million tax-free during your
lifetime.
Annual
gifting. You can give anyone up to $12,000 per year per person,
tax-free. It doesn't count against your $2 million estate tax exclusion.
An insurance
trust. You can create a trust precisely for the purposes
of conveying an insurance policy. It can be one way to make sure
that a beneficiary gets an instant cash infusion for expenses without
having to wait for probate. Tax tip: Keep the insurance in the trust,
pay the premiums from the trust or from your annual gift to the
trust, that way the insurance won't count toward your $2 million
federal estate tax exclusion, says Burda.
A bypass
trust. When using a bypass trust, your partner, or whoever
you name as first beneficiary, has full control of the assets in
the trust during his or her lifetime. But when the partner dies,
any remaining assets go to a party you've selected.
Joint
tenants with right of survivorship. This is a way to title
property that is used by unmarried couples, partners or siblings
to allow the survivor to keep a piece of property, such as a home.
When one dies, ownership passes to the survivor. But the IRS can
assume that the entire property belonged to the first partner and
tax accordingly. If that's not the case, keep good records. Some
states won't let unmarried couples use joint tenancy, says Burda.
Retirement
accounts. Thanks to a change in the law last year, you may
be able to leave your 401(k) account to a domestic
partner, who can roll the money into an inherited IRA to grow tax-deferred.
But only if your employer-sponsored plan allows it, says Sears.
Keep it current
Estate plans are like technology -- it pays to stay
current.
Your life changes and so do the state and federal
tax rules. To be effective, your estate plans must keep pace. If
you have a major life event, that's often a good time to review
your plans. Different states treat domestic partners and their arrangements
differently, so moving also means revisiting your plans, says Sears.
Otherwise, update things at least every three years, he says.
Same-sex couples "don't have the support, in many
cases, of the law or the family," Dobrovolny says. "You can't rely on
the good will of the law or family. You have to rely on legal documents."
See also: "Health
care planning for same-sex couples"
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