LGBT families are experiencing major financial implications following Obergefell v. Hodges, a landmark ruling from the United States Supreme Court that made same-sex marriage legal in all 50 states.
The ruling allows same-sex couples to take advantage of joint-filing for tax purposes, but it also changes the playing field for estate planning.
Now, many of the estate planning requirements of opposite-sex couples are placed upon same-sex couples, allowing for estate planning to be straightforward and much easier. A few tips when starting a life with a same-sex partner include:
1. Create a Will
“The biggest mistake LGBT couples make is not creating a will,” says Brad M. Micklin, a New Jersey attorney. A will does a few things to protect your assets and wishes in the event of your demise:
- A will prevents costly probate issues
- A will properly divides your assets per your wishes
- A will can provide guardianship of your children
Nearly two-thirds of Americans do not have a will. If you die without a will in place, intestate succession will occur, which varies state to state.
2. Consider Prenuptial Agreements
The last thing you want to ask your partner after saying “yes” to a marriage proposal is to sign a prenuptial agreement. But these agreements allow you to enter into a legal and financial arrangement prior to tying the knot.
Avoiding legal tangles in the event of a divorce is easier before a marriage.
3. Include Power of Attorney
Married couples make the mistake of assuming a spouse is automatically granted power of attorney over your affairs. No matter the relationship, a power of attorney must be executed.
Power of Attorney allows for both financial and health care control. If your spouse becomes incapacitated, you will be able to make financial and health decisions on his or her behalf.
A living will declaration will allow you to state the health care you wish to have, but a power of attorney allows your spouse to make decisions on your behalf.
4. Understand Estate Tax Implications
The state in which you reside may or may not impose an estate tax. On the federal level, estates worth over $5.45 million will need to pay federal estate tax. If you and your partner do not have an estate of this value, you won’t need to worry about paying federal estate tax.
Individual states also have estate tax.
New Jersey, for example, exempts estates of up to $675,000. If an estate is worth more than this amount, the remaining spouse or descendant will need to pay estate tax to the state. The following states require estate taxes:
The majority of states on this list have exemptions for estates worth up to $1 million.
5. Prepare for the Unexpected
In the event that the Supreme Court’s decision is overturned in the future or other legalities occur, it’s important that your estate planning strategy covers as much unknowns as possible. A few considerations are:
- Domestic Partnership Agreement: An agreement on custody plans, share of income and expenses and property.
- Living Will: A will that maps out your succession, guardianship and an executor of your estate.
- Living Trust: A trust allows you greater control of who receives your assets upon your death.
Final arrangements should also be mapped out while you’re alive. Your estate plan should include paying for your final arrangements, burial or cremation, caskets and urns as well as other intricacies. Several states have appealed same-sex marriage, and covering yourself with the tips above is the right way to approach LGBT estate planning in 2016.