LGBTQ+ Top 5 Estate Planning Essentials

Note: This post and video were written and recorded well before Dobbs v. Jackson Women's Health Organization. In case you are unaware, in Justice Thomas’ concurrence, he argued in favor of the Supreme Court revisiting Obergefell v. Hodges (2015) among other cases. This is an area of law that is, unfortunately, in flux. As matters progress, we’ll keep you up to date on how the estate planning world is to be impacted as a result.

The legal recognition of same-sex marriages from the 2015 Obergefell v. Hodges Supreme Court decision brought with it more than just marriage equality, but a plethora of estate planning and tax tools that accompany recognized marriage. As the title of this post states, we'll be discussing some essentials in estate planning for those who are a part of the LGBTQ+ community. However, what is great about the estate planning world is that all the same principles apply here as to cis-gender people and heterosexual marriages.

1. Do More Than Just a Will

Firstly, you should do more than simply have a Will. We'll touch on after-death concerns below, but you should always protect yourself during your lifetime. There can be a lot of assumptions made when it comes to working on someone else's behalf and same-sex couples tend to get challenged more often when it comes to medical and financial decisions – particularly when someone is incapacitated, and other relatives are trying to assert authority. Therefore everyone, LGBTQ+ people especially, need to have matters documented. Your Advance Health Care Directive, or Health Care Power of Attorney, is where you designated your agent to make medical decisions on your behalf, manage and access your medical records, and even manage visitation if you were to be in a facility but don't want certain individuals to enter. Additionally, a Durable Power of Attorney for Finances designated your attorney-in-fact, essentially your agent, to manage your financial affairs and access financial records if you are unable to. This can include smaller matters like paying bills to larger ones like selling real property or managing investments.

2. Ensure Children are Well Looked After

Next, we have what is sometimes referred to as "closing the loop for your children." LGBTQ+ parents may have a slightly unique situation where a child is the biological child of only one parent yet there isn't a third party in the mix like what may occur in blended marriages. Under the law, an adopted child has all the same inheritance rights as that of a biological child. However, that adoption must have been finalized, otherwise that child could be left out. While yes, if adoption is required, it is something that should be done right away, but one should always have safety nets within their estate plans and that means specifically mentioning someone as a beneficiary of your estate, even if you plan to adopt them later. Life can be chaotic, and adoptions take time. Remove the random elements of time and chance and set matters in writing as soon as possible.

Going further, if minor children are in the mix, then one should always have guardians nominated in the event you and your partner pass away before the child reaches adulthood. This can be done in your Last Will and Testament or by a separate document called a Nomination of Guardians for Minor Children. Keep in mind that this is only a nomination. A family court will ultimately have the final say based on what it finds to be in the best interest of the child.

3. Check Title on Real Estate

Third, we have real property ownership concerns. While, as estate planning attorneys, if you tell us you have real estate, then nine times out of ten, we will be recommending a living trust to hold the property, avoid probate and save your beneficiaries a lot of hassle and money. However, all couples should be aware of the various methods of holding title to property – the most common of which are joint tenancy and tenants in common. We've covered both in depth already but know that these are methods for multiple parties to hold property together and they do not need to be married to do so. The main difference between the two is what happens to one's ownership interest at death. Under joint tenancy, the deceased property owner's interest transfers to the surviving title holder, but under tenants in common, the deceased owner's interest stays in their estate (and likely triggers a probate issue).

4. Take Advantage of Marital Tax Savings and Deductions

Fourth, LGBTQ+ couples should take advantage of marital tax savings and deductions. Previously, LGBTQ+ couples, when leaving an inheritance to a partner, would also purchase a life insurance policy to cover estate taxes. However, the estate tax threshold is now over $12 million indexed to inflation, and those in newly recognized marriages can now take advantage of an unlimited marital deduction only available to married couples.

With the unlimited marital deduction, the amount of property that can be transferred between spouses is unlimited. Spouses can transfer all their property between each other, either during lifetime or at death, and not incur any federal estate or gift tax liability. In essence, if estate taxes are going to be owed, then the payment of such can be delayed until the death of the surviving spouse – or the possibility of such eliminated with proper planning from the surviving spouse.

5. Controlling who your Beneficiaries and Heirs are

Last but certainly not least, at number 5 we have directing the distribution of your estate according to your wishes, not defaulting to the state's direction. A study conducted by the Spectrem Group found that the LGBTQ+ community was less likely to have even a Last Will and Testament in place when compared to heterosexual and Cis-gender couples. These were wide differences as well - between 15% and 20% depending on net worth (that gap widening as net worth went up interestingly as well). While this survey was done in 2014, if we consider the fact that last month, we covered a survey from April of this year wherein it was shown only about a third of Americans have an estate to begin with and that LGBTQ+ people are less likely to have an estate plan overall, then we have a recipe for a majority of LGBTQ+ people leaving their estate plans up to the state, rather than having a say in the matter.

Summary

We've covered the importance of estate planning on this channel when it comes to control, cost, time and accessibility already, so we won't beleaguer the point here. However, we would like to stress the control aspect. If you have nothing in writing, then your estate will be distributed however the state's probate code dictates. Additionally, you won't even have a say-so in who is allowed to manage your estate after your passing since anyone can petition to be your estate manager. Finally, to reiterate a point from earlier, if you want to have input as to who a court may award guardianship to of your minor children, then you must do so in writing in advance. With the fact that LBGTQ+ people are unfortunately more likely to have strained family relationships, to put it mildly, the importance of making your wishes known and with the force of law behind them is paramount. You want to leave as few matters up to chance as possible and leave no openings for others to challenge your wishes and intent.

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