If you’re one half of a same-sex couple, you’ve got plenty to be excited about these days. The federal government recognizes same-sex marriages. The Supreme Court heard arguments at the end of April on same-sex marriage and whether it’s unconstitutional for certain states to ban it, and is due to hand down a decision in June.
So perhaps part – just part – of this article will be obsolete by the end of this summer. But that is the nature of estate planning for same-sex couples already. “With traditional couples, we only review their estate plan every three years or when something major has happened,” says Edi Alvarez, a financial planner in San Francisco who specializes in self-employed women. “With same-sex couples we have to do that more often.
That doesn’t mean you should put it off, though. Estate planning is one of those things that, once done, can lift a lot of anxiety off your shoulders. So what should you know about your will and your living will? We asked two planners how they advise their own clients in non-traditional partnerships on these matters.
Same Services, Different Details
“At this point there are many more similarities to planning for a historical couple than there are differences, due to law changes,” says Brian Kuhn, with PSG Planning in Maryland. “I would be far more concerned about the half of people in the country who don’t have any of those documents, than the nuances of a same-sex couple who is trying to put together those documents.”
But, you’ll want a plan that carefully considers all your wishes, regardless of what the current law says. “Same-sex couples are one group for whom it’s imperative to have an estate plan,” Alvarez says. She adds that you also definitely, definitely need one if one of you isn’t a citizen or you’ve married into a blended family.
Both Alvarez and Kuhn work in states where same-sex marriage is legal. So they can’t speak to all the issues that come from living in one of the remaining states where it isn’t legal. However, there are many legal snags that can even mess with your federal benefits in those states, so you’ll want to find a planner who has a lot of experience working with similar couples.
“I always start by listening to where my clients are at and what they’re doing,” Alvarez says. “We’re not doing standard templates and running people through them. Same-sex couples tend to be more informed about state laws, and they tend to be very communicative. We have so many more things to deal with, so it’s a good thing they come with a greater background and willingness to communicate so we can spend more time on the details.”
Despite the additional work and detail that might go into a plan, Alvarez does not charge differently for same-sex couples versus traditional ones. She just recommends couples go to a financial planner before an estate planning attorney. “We do the preliminary parts of estate planning conversation and education so that by the time they get to the attorney, there is very little that needs to be explored regarding their wishes, therefore the costs are reasonable,” she says. “If they go directly to an attorney to think through planning wishes and issues, we do find the costs are higher for those who are in non-traditional marriages, and sometimes the estate plan needs to be reworked to include additional wishes.”
Registered Domestic Partnerships vs. Marriage
As legal marriage becomes available to them, many same-sex couples are deciding whether to stay in their registered domestic partnerships/civil unions, or get married. “Whether same-sex couples or traditional couples, a domestic partnership is quite different from a marriage,” Alvarez says. “Some assume that since marriage is recognized federally, a registered domestic relationship would have the same rights.” That’s not the case, currently. Registered domestic partnerships get no recognition federally. So if that is your situation, you need to build that into your estate plan. “We treat any federal benefits like Social Security as if they weren’t in existence, and make sure the legal documents they have will cover what they want, because we can’t rely on a default plan and federal benefits,” Alvarez says.
For everyone – same-sex couples, traditional couples, single people just starting out – beneficiaries can be a convenient shortcut to make sure your assets painlessly transfer to the person you designate if you pass away. “For group life insurance through work, privately owned life insurance, and things like IRAs, you can name anyone you want as the beneficiary,” Kuhn says. “So that is irrelevant according to the gender of the person.”
The big difference is that when you are married, you either have to put your spouse down as your beneficiary, or get them to sign away that right. If you are in a registered domestic partnership, your plan may or may not require you to put down your partner. “Some people will choose to put 50 percent to the partner and 50 percent to someone else,” Alvarez says.
“Pretty much across the board, if you are a spouse, you are not subject to that estate tax,” Kuhn says. That is one of the biggest benefits of legalizing same-sex marriage, that if your partner were to die, the government wouldn’t take a huge chunk of their estate. Of course, this scenario isn’t common, but it’s possible. “That person would have to die while it’s still illegal in a state with an inheritance and have a net worth that is sizeable enough to trigger that tax,” Kuhn says. “All of that is rare collectively.”
If that does apply to you, however, “You enter the realm of a more complicated structure,” Alvarez says.
Health Care Directive/Living Will
“With our clients, we are most concerned that their estate plan takes care of what they need when they are alive, and second it takes care of things after they are gone,” Alvarez says. “The first item I start with is the health care directive, and that is for everybody. A health care directive is where the person stipulated will be your advocate, who will make decisions that you would do if you were able to. It needs to be in place ASAP,” Alvarez cautions. “The person who you care about should be allowed to do that, and not necessarily your blood relatives. In some states that don’t allow registered domestic partnerships, you’re likely to get pushback from hospitals. I encourage my same-sex couples that are in an RDP [registered domestic partnership], when they travel to other states, to carry their health care directives with them. All you need is one accident, to find that the person you want next to you may not be the person who is allowed next to you.”
Another important document is the Durable Power of Attorney, which allows your partner to take care of your finances when you are incapacitated.
In traditional marriages, the partner is presumed to be the decision maker. “If someone is in a same-sex marriage, we’re starting to see these sorts of automatic features come into play in the case of same-sex marriages.” For registered domestic partnerships, on the other hand, we have to adapt the estate plans to make sure they follow what the couple wishes,” Alvarez says.
The Importance of Estate Planning
No matter what decision the Supreme Court hands down this summer, estate planning will always be an important piece of anyone’s financial strategy. It may be easy to put off, but it’s not easy to deal with an estate that was left without any plan. So talk to your financial planner about how you can make sure your wishes are respected, and the people you love are taken care of, no matter what gender they are.