PROTECT YOU LOVE YOURSELF AND THOSE A STEP-BY-STEP GUIDE TO LIFE & ESTATE PLANNING FOR LGBT AMERICANS AND THEIR FAMILIES

Transcription

1 PROTECT YOURSELF AND THOSE YOU LOVE A STEP-BY-STEP GUIDE TO LIFE & ESTATE PLANNING FOR LGBT AMERICANS AND THEIR FAMILIES

2 This Guide is continually updated to reflect the latest changes in the law. Please check the HRC website () for the latest version as you consider your life and estate plan. version 2.0 NOTE: The information in this Guide is not intended as legal advice. Please consult a lawyer for legal advice on your particular situation by the Human Rights Campaign Foundation. The Human Rights Campaign Foundation owns all right, title and interest in and to this publication and all derivative works thereof. Permission for reproduction and redistribution is granted if the publication is (1) reproduced in its entirety and (2) distributed free of charge. The Human Rights Campaign name and the Equality logo are trademarks of the Human Rights Campaign. The Human Rights Campaign Foundation and design incorporating the Equality logo are trademarks of the Human Rights Campaign Foundation.

3 TABLE OF CONTENTS STEP THE IMPORTANCE OF LIFE AND ESTATE PLANNING FINDING A LAWYER THE CORE OF YOUR LIFE AND ESTATE PLAN STEP 2.1 The Key Documents that Make Up Your Core Life and Estate Plan STEP 2.2 Consider Your Wishes for Your Will STEP 2.3 Understanding Probate ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN STEP 3.1 Consider a Trust in Your Life and Estate Planning STEP 3.2 Your Options for Titling Real Estate STEP 3.3 Planning for Your Retirement Benefits STEP 3.4 Should Insurance Be a Part of Your Plan? STEP 3.5 Business Succession Planning PLANNING FOR YOUR RELATIONSHIP AND FAMILY STEP 4.1 Protecting Your Rights and Your Relationship STEP 4.2 Protecting Your Parental Rights and Your Children TAX CONSIDERATIONS STEP 5.1 Understanding Gift Tax Rules STEP 5.2 Understanding Estate and Inheritance Tax Rules UNDERSTANDING FEDERAL BENEFITS CREATE YOUR LEGACY OF EQUALITY GLOSSARY OF TERMS 56

4 THE IMPORTANCE OF LIFE AND ESTATE PLANNING WHAT IS LIFE AND ESTATE PLANNING AND WHY IS IT IMPORTANT? Life and estate planning is the way you plan to protect yourself and your loved ones for the eventualities of life and death. Life planning addresses situations where, for health reasons, you may not be able to make your own medical or financial decisions, or take care of your dependents and loved ones. Preparing a plan before such eventualities arise helps ensure that matters are addressed as you would want them to be, by people you trust to make decisions on your behalf. Similarly, estate planning ensures that, upon your death, care of your loved ones and distribution of your assets are handled in the way you want. Most issues of life and estate planning are matters of state, not federal, law. Your state has its own rigid rules that specify what happens to you, to your loved ones and to your assets during your lifetime, if you are incapacitated, and after your death if you do not put in place your own plan. By preparing a plan now, you can make sure that your wishes are carried out by people you trust. For example, if you are unmarried without a plan in place, state law default rules grant decision-making authority to your nearest living relatives should the need arise, and those rigid rules will also determine how and to whom your assets will be distributed after your death regardless of your actual wishes. For lesbian, gay, bisexual and transgender (LGBT) people, especially those estranged from their family or from certain relatives, this result can be misguided at best and tragic at worst. The state will make decisions that ignore your partner, the family members you are closest to, your friends and the causes that matter to you. Taking control through life and estate planning means that you can protect yourself and your assets and provide for your loved ones as you wish. Life and estate planning is important for everyone, regardless of relationship or family status. For members of the LGBT community, it is even more important to treat these matters formally, without relying on default rules of state law. 4

5 THE IMPORTANCE OF LIFE AND ESTATE PLANNING WHAT ABOUT THE SUPREME COURT S MARRIAGE DECISIONS? In June 2013, the Supreme Court struck down the part of the Defense of Marriage Act (DOMA) that denied federal benefits to married same-sex couples. Eliminating DOMA addressed some of the life and estate planning concerns of married same-sex couples, but added some new complexities, because some federal benefits were available only if a couple s home state recognized their marriage. In June 2015, the Supreme Court ruled that all states are required to provide marriage licenses without regard to the gender of the spouses, and all states must recognize same-sex marriages performed in other states. Hence marriage equality is available nationwide, and previous issues with differences in state law relationship recognition are resolved. However, it is important to understand that while these decisions are major victories for the LGBT community, they do not reduce or eliminate the need for comprehensive life and estate planning. In light of these rulings, it is critically important that all same-sex couples work with their financial and legal advisers to review their life and estate plans. In accordance with applicable federal and state laws, there may be automatic changes to your plan as a result of your marriage. For more information about the Supreme Court s recent marriage ruling, please visit A NEW FRONT In response to the advances in LGBT equality, opponents in many states have pushed for state laws to limit legal protections for the LGBT community. One area that particularly impacts life and estate planning for LGBT people are laws that allow businesses to refuse service to members of the LGBT community based on religious or conscience objections. For example, a religiously affiliated long-term care facility could arguably refuse to recognize a patient s spouse. HRC is actively working to defeat these initiatives. You can learn more at LEGAL RELATIONSHIPS AND RELATIONSHIP TERMINOLOGY Although marriage equality is available nationwide, several states still provide other relationship options, such as civil unions or domestic partnerships (for the latest status, see the Marriage Equality and Other Relationship Recognition Laws map on HRC s Maps of State Laws & Policies website at In these states, your partner is recognized as a spouse for purposes of state law, and may be recognized as a spouse in other states with civil unions or domestic partnerships. But neither the federal government nor other states will recognize your partner as your spouse unless you are married. Throughout this Guide, the generic term partner is used to refer to an unmarried person s life partner. Because state and federal law recognize married spouses but generally do not recognize an unmarried person s life partner, it is sometimes important to distinguish between spouses and partners. A qualified term, such as domestic partner or business partner, is used where partner alone might be ambiguous. While everyone should have a proper life and estate plan, if you are in a non-marital relationship, it is crucial that you have a life and estate plan even 5

6 THE IMPORTANCE OF LIFE AND ESTATE PLANNING if your state recognizes your domestic partner as your spouse. A proper plan will protect you, your family and your assets if, for example, you travel or move to a state that doesn t recognize your legal relationship. ABOUT THIS GUIDE This Guide is designed to help you through the process of obtaining a comprehensive life and estate plan by introducing you to the types of documents you will need, and by discussing a range of issues that you will want to consider. This Guide is not a substitute for consulting with an estate planning lawyer who is versed in the issues facing LGBT individuals, couples and families. The Guide is divided into Steps. The first two Steps apply to everyone, and the remaining Steps are situational. Review them to see if they apply to you. STEP 1 begins the process with a discussion of how to find a lawyer. STEP 2 discusses the key documents that make up the core of all life and estate plans: a will, a living will and powers of attorney. This Step guides you on thinking through what you want your will to accomplish and explains the legal process that happens after your death. STEP 3 discusses trusts an alternative arrangement for your assets that can reduce legal complexities as well as other types of assets, such as real estate, life insurance and retirement benefits, which are part of many people s plans. STEP 4 discusses relationships, children and other family arrangements that may be part of your life and estate planning. STEP 5 discusses tax considerations for life and estate planning, potentially avoiding tax burdens for those you provide for in your plan. STEP 6 discusses federal benefits available to you and your loved ones. STEP 7 discusses considerations for charitable giving as part of your estate plan, to create your legacy supporting equality. Wherever possible, this Guide uses plain English and avoids legal terminology. However, sometimes a specific legal term is used for precision or to introduce you to language that your lawyer is likely to use. The Glossary at the back of this Guide defines these and other legal terms. A NOTE FOR TRANSGENDER PERSONS If you have or intend to legally change your name and/or gender, in addition to developing your own life and estate plan, you should also discuss life and estate planning with anyone who may name you in their plan. Lawyers often draft wills and related documents in gendered form, such as I leave XXX to my son John, or In trust for my niece Mary. These gifts could be challenged in court if they are not updated to reflect your legal name and gender. LEGALESE Many lawyers tend to use too much legalese legal terminology where plain English would suffice. Sometimes specific legal terms are necessary (e.g., domicile rather than residence, as discussed later). Your plan documents should be written so that you can understand them. Don t hesitate to ask your lawyer to simplify the language. REMEMBER LIFE AND ESTATE PLANNING IS A LIFELONG PROCESS Getting started in life and estate planning can be complex, and the purpose of this Guide is to help simplify the process for you. Keep in mind that this is an ongoing process. Once you ve established your plan, you should routinely revisit it every five years or so, and certainly after any major life change, such as entering or leaving a relationship, having a child, moving to a new state, buying a house or any significant change in your financial situation. 6

7 STEP 1 FINDING A LAWYER

8 STEP 1 FINDING A LAWYER WHY YOU SHOULD FIND A LAWYER Many websites offer templates for life and estate planning documents, including services that fill out these documents and provide a legal review, for a fee. While these sites are useful to see examples and to educate yourself, it is in your best interest to work directly with an experienced lawyer who is familiar with your state s laws, your individual circumstances and the unique issues facing the LGBT community. No two life and estate plans are the same, and as discussed next and throughout this Guide, ongoing relationships with your lawyer and advisers are crucial to the success of your life and estate plan. Just as you may learn a great deal about health concerns online but still go to your doctor for diagnosis and treatment, you should work directly with a lawyer to develop your plan. SELECTING A LAWYER The most important factor in selecting a lawyer for your life and estate planning needs is to find someone you re comfortable talking with about sensitive issues. Life and estate planning involves conversations about what you want to happen if you are unable to make your own healthcare or financial decisions, and what you want to happen after your death. Your lawyer will ask difficult questions, challenging you to think about situations you may not have considered. Many lawyers will offer a no-cost initial consultation. Use this opportunity to see if you are comfortable having this conversation with the lawyer before engaging his or her services. Remember that most life and estate planning issues are controlled by state law. So you need to find a lawyer who is licensed to practice in and familiar with the law of the state where you maintain your permanent residence. One of the best methods is to get referrals from friends, family or co-workers who have worked with a local lawyer for their life and estate planning needs. Many state, county and regional bar associations maintain lists of lawyers who practice in your area, and may have a referral service, as well. You may also want to consult with local or national LGBT organizations for referrals. When you meet with the lawyer for the first time, ask about his or her experience with LGBT clients and the types of life and estate planning issues you and your loved ones need to address, as discussed in the Guide. You want to LAWYERS AND ADVISERS Some lawyers specialize in estate planning; others do estate planning as part of a broader practice. Depending on your situation and needs, you may also need to talk to a family law or tax lawyer. This Guide points out issues where you should seek specific expertise if your lawyer is not experienced in that area of law. If you are young, don t be put off by the term elder law. Lawyers with expertise in elder law may be well suited to work with you on your plan, because of the breadth of life and estate planning matters they routinely address. You should also consider working with a financial planner as you develop your life and estate plan. Even if your assets are modest, the advice of a good financial adviser can help you identify your financial and retirement goals and develop a plan to reach them. Your financial adviser can also assist in developing your estate plan. 8

9 STEP 1 FINDING A LAWYER feel confident both that your lawyer is competent with these issues and that you are comfortable discussing them with your lawyer. HOW MUCH DOES IT COST? As with many things involving lawyers and the law, the answer is, it depends. Developing a comprehensive life and estate plan takes time and experience. This is more than preparing a few simple documents. You and your lawyer will work together to decide what you want to accomplish and determine the best way to realize your goals. Lawyers use one of two rates to bill clients in this type of planning: hourly or flat. Find out what the lawyer will charge for the services you want. If you decide on an hourly rate, set a ceiling above which the fees cannot go. Knowing the maximum amount in advance will help you budget. Any fee is negotiable. Just remember, cheaper is not always better. PREPARING TO MEET WITH YOUR LAWYER Many lawyers will give you an estate planning questionnaire to complete prior to your initial meeting. The questionnaire will ask about your family, friends, assets and liabilities. It is important to complete the questionnaire to facilitate your discussions. If you are unsure of how to answer any questions, mark them and discuss them with your lawyer. ISSUES WITH JOINT REPRESENTATION Couples often want a single lawyer to handle their life and estate planning jointly. At your initial meeting, your lawyer should discuss with you the possibility that in the future, conflicts could arise that would prevent the lawyer from being able to represent both of you (e.g., if the couple separates), which would require that one of you find another lawyer. If you choose to have a single lawyer represent you jointly, understand that there can be no lawyer-client privilege between one of you and the lawyer. There can be no secrets between the represented parties. If the lawyer is asked to keep confidences of one party from the other, this could represent a conflict of interest that will require you each to have separate lawyers. The lawyer-client privilege will still protect your discussions with your lawyer from outside parties. AGREEING TO REPRESENTATION Once you and your lawyer agree on the scope and costs for developing your life and estate plan, your lawyer should provide you with a contract to sign that spells out the scope of the work, the costs, the responsibilities of each party (e.g., financial documents you may need to provide) and the set of documents you will receive when the plan is completed. Do not hesitate to ask for clarification, and do not sign the contract until you are comfortable with it. 9

10 2STEP THE CORE OF YOUR LIFE AND ESTATE PLAN

11 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN This Step covers the essential parts of every life and estate plan: STEP 2.1 discusses the key documents that make up your core life and estate plan. STEP 2.2 explores the process of deciding what you want your will to accomplish. STEP 2.3 explains the probate process through which many of your assets will be distributed after your death, per the conditions laid out in your will. This Step applies to everyone who needs to develop a life and estate plan, regardless of their relationship and family status, and independent of the amount and type of their assets. Familiarity with this basic information will prepare you for your initial conversations with an estate planning lawyer. 11

12 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN STEP 2.1 THE KEY DOCUMENTS THAT MAKE UP YOUR CORE LIFE AND ESTATE PLAN MANAGING YOUR DOCUMENTS You should keep all the documents that make up your life and estate plan together in a safe place. You should also make sure that the people you designate to care for you when you are incapacitated, or to manage your affairs after your death, have access to these documents. They should have your lawyer s contact information and possibly copies of your documents, as well. Be sure to discuss this with your lawyer. WHAT DOCUMENTS DO I NEED? A basic life and estate plan consists of the following key documents, each of which is discussed in this section: Will Up-to-date beneficiary designations for all retirement plans, life insurance policies and annuities Up-to-date titles for property Durable power of attorney for finances/asset management Advance healthcare directive (living will and healthcare power of attorney) Health Insurance Portability and Accountability Act (HIPAA) authorization YOUR WILL Your will is the foundation of your estate plan. Your will specifies your wishes for managing your estate after your death. Primarily, this involves a plan for distribution of your assets (money, real estate and other property). Your will also contains provisions for handling funeral arrangements, resolving outstanding debts and, depending on your family situation, designating a guardian for your children. Planning for your will is discussed in much more detail in Step 2.2, and the process by which your will is implemented, known as probate, is discussed in Step 2.3. OTHER DOCUMENTS There may be other documents that should be included in your life and estate plan. Many of these are discussed in this Guide; your lawyer may suggest others: Funeral directive Revocable living trust Life insurance trust Special needs trust Cohabitation or domestic partnership agreement Pre- or postnuptial agreement Joint custody agreement Sperm or egg donor agreement Surrogacy agreement FUNERAL DIRECTIVES Depending on the laws in your state, your lawyer may also recommend a funeral directive in addition to making provisions in your will. This document states your express wishes for funeral arrangements and disposition of your remains. In many states, if you are unmarried your blood relatives have decision-making authority and can exclude your partner. A funeral directive can help ensure that your wishes are met. 12

13 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN TITLES AND BENEFICIARY DESIGNATIONS Your will determines only who gets probate assets generally those titled in your name alone, without a designated beneficiary. Many types of assets are handled outside your will. For example, real estate and some other property may be jointly owned with rights of survivorship, and your co-owner will retain ownership after your death. You may have retirement plans or insurance policies for which distribution is handled by a beneficiary designation. Your life and estate plan includes making sure that such property is properly titled and your accounts and policies have proper beneficiary designations. Management of these assets is discussed in Step 3. FINANCIAL POWER OF ATTORNEY A power of attorney allows you to grant someone else (often referred to as your agent ) authority to act on your behalf on specific legal matters. For example, your agent can sign contracts in your name or access your bank accounts, if you grant them that authority. A power of attorney can be general or specific (limited to specific transactions). A power of attorney can take effect immediately or in the future when some condition arises (referred to as springing ). Normally a power of attorney expires when you are no longer able to make legal decisions; a durable power of attorney remains effective during your disability. A general durable power of attorney for finances/asset management should be part of your life plan. This document allows you to name a trusted person or institution to act on your behalf for financial matters if you are unable to act personally due to unavailability or disability. Because this person will have legal authority to execute all financial or business transactions from writing checks to selling property you should take care to choose a responsible and trustworthy person or institution. A general power of attorney grants your agent power to handle all financial and business matters that you are currently incapable of performing yourself. A durable power of attorney expressly continues as long as you are unable to act on your own behalf due to your disability. Your lawyer will likely recommend that you name a primary agent and an alternate agent. The primary agent is often a partner, spouse or close relative. The alternate agent will be granted your power of attorney only if your primary agent is unable to serve in that capacity. ADVANCE HEALTHCARE DIRECTIVE An advance healthcare directive (sometimes simply referred to as an advance directive ) consists of two documents a living will and a healthcare power of attorney. 13

14 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN A living will instructs your doctor on how to decide when to no longer prolong your life if you are unconscious and there is no reasonable chance of your recovery. It is also possible to stipulate in the living will what procedures you wish to be included as extraordinary measures, such as nutrition, hydration and medication. A healthcare power of attorney allows you to name an agent to make medical decisions on your behalf while you are incapable of making your own decisions. Subject to your wishes and directions, this can include the decision to withdraw or withhold treatment, and in so doing to allow a natural death to occur if you are unconscious and there is no reasonable chance for your recovery. State laws in this area vary significantly. Your lawyer should be knowledgeable about these exceptions and differences and advise you accordingly. You should name someone who will carry out your wishes without imposing his or her own beliefs, and you should name both a primary agent and an alternate agent. For many people, these are difficult decisions. But they are important decisions, even though they involve difficult conversations. These documents give you the right to let your healthcare providers know what you want when you cannot speak for yourself. Your agents are required to carry out your wishes and instructions. HIPAA AUTHORIZATION The Health Insurance Portability and Accountability Act (HIPAA) is a federal law that, among other things, protects the privacy of medical information. In particular, it prohibits medical personnel from discussing a patient s condition with anyone other than those authorized by the patient. Under HIPAA, you have the right to authorize anyone to speak to your healthcare provider and have access to your medical records your spouse, partner, a family member or any other person. While doctors and healthcare facilities generally request that you provide this authorization during registration, your lawyer should also provide you with a general HIPAA authorization document. Along with your advance healthcare directive, this helps ensure that your wishes are accommodated if you are unable to express them yourself (such as during a medical emergency). HOSPITAL DECISION MAKING RULES In 2010, the Obama administration implemented rules that require all healthcare facilities receiving Medicare or Medicaid funding to honor a patient s advance healthcare directive. There have been situations where same-sex spouses and partners have been denied access to their loved one because hospital policy restricts visitors to immediate family. The situation is changing, but having an advance healthcare directive in place is absolutely essential. HEALTHCARE EQUALITY INDEX To help the LGBT community find healthcare facilities in their area that have strong policies of inclusiveness, HRC created the annual Healthcare Equality Index (HEI). This guide can help you choose where you will be cared for, and you can specify your wishes in your healthcare power of attorney. You can find the latest edition of the HEI at 14

15 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN STEP 2.2 CONSIDER YOUR WISHES FOR YOUR WILL The will is the foundation of every estate plan. Start with this document, and lay out your wishes for how you want your estate to be administered and what you want done with your assets after your death. When planning for your will, you should consider (a) the people or organizations you might leave behind whom you wish to provide for; (b) all your assets; and (c) how you want to distribute your assets among these people and organizations. Your will should include these elements: Your spouse or partner s name, if applicable, and the nature of your relationship (e.g., marriage, civil union, domestic partnership, committed life partners). Your children s names, if applicable, and the nature of your relationship to the children (e.g., legal parent, or spouse or partner of the legal parent). The names of any other people in your care (e.g., an elderly parent) and the nature of those relationships (e.g., legal guardian). The person you wish to implement the provisions of your will after your death (your executor) and an alternate if the first person is unable to serve. The names of primary and alternate guardians for any minor children. Your wishes for funeral arrangements. The manner in which your outstanding debts and taxes should be paid, if the state law default rules, which your lawyer will explain to you, do not meet your wishes. Finally, the beneficiaries who will receive your assets upon your death. Your lawyer will discuss with you what you wish to happen if the specified beneficiary dies before you do, so consider naming alternate beneficiaries, as well. STATE LAW DEFAULT RULES When someone dies without a will, each state s laws establish rigid rules for how assets are distributed. Unmarried couples should remember that state law will not recognize your partner and may not recognize your children. Be sure that your will specifies your wishes for how your estate should be administered and distributed after your death. IDENTIFYING YOUR SPOUSE, PARTNER AND CHILDREN Your will should identify all members of your immediate family, including your spouse, partner and children. This is especially important for LGBT people; being explicit provides evidence of your relationship and intent for distributing your assets should anyone challenge your will after your death. Your lawyer will also discuss with you making provisions in your will to address the possibility of your getting married and/or having children after your will 15

16 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN is complete, to ensure that state law default rules do not conflict with your wishes. And should you choose to expressly not provide for a member of your family, your lawyer will advise you on ways to handle this in order to minimize the chances of that person challenging your will after your death. DESIGNATING YOUR EXECUTOR The person you name to manage your estate after your death is referred to as your executor. This person pays funeral expenses, debts, taxes and other expenses of estate administration and ensures that the instructions in your will are carried out. Most couples name each other as their executor, but this is not required. An alternate executor should also be named. If there is no named alternate and the primary nominee is unavailable, the court will appoint an executor for the estate, and that person may be someone you do not want. Choosing your executor is an important part of the process. Pick someone you trust and who can handle the administrative duties. Sometimes that may not be your spouse or partner. You have the right to name whomever you want to serve in this role. There are times when naming a professional as the executor makes sense. If you have no one to name as an alternate, discuss your options with your lawyer. Consider working with your bank s trust department; many times they will agree to act as the alternate executor. DESIGNATING GUARDIANS FOR MINOR CHILDREN If you have minor children, the guardian clause is essential. Naming the person who will care for your children in the event of your death is an important parental obligation. A guardian is responsible for the child s care and for managing your child s property. You can name multiple people as guardians, such as one to care for your child and another to manage the child s property. You will probably want to name your spouse or partner as the guardian if you are raising children together. However, if only one of you is considered the child s legal parent, your spouse or partner may be unable to name a guardian. Your personal legal relationship to the child should be specified in your will. A bridge guardian can also be named to take care of your children until the court appoints the permanent guardian. For same-sex couples, this clause could prevent the children being removed from their home and placed in foster care or with relatives they do not know when their legal parent dies. Continuity is important for children. Naming a bridge guardian may be one tool you can use to achieve that. REVOCATION BY MARRIAGE In some states, your will may be automatically revoked when you marry. With the changing marriage equality landscape, same-sex couples contemplating marriage should review their estate plans with their lawyers. If you and your partner have named each other as beneficiaries in your wills, you may need to update them upon your marriage. WHAT S IN A NAME? While executor is the best-known term for the person who manages your estate, you may also see other terms used, such as personal representative or administrator. This distinction is significant in some states; your lawyer will ensure that your documents use the proper terms. LEGAL STATUS OF YOUR CHILDREN Be sure your lawyer understands your personal legal relationship to your children. Your lawyer may recommend additional legal protections to ensure that your children are properly provided for and protected after your death. 16

17 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN If you are the legally recognized parent and there was no second parent adoption, you may consider including a clause in your will giving consent for your spouse or partner to adopt your children after your death. THE PLAN FOR DISTRIBUTING YOUR ASSETS When most people think about a will, they think about leaving gifts to surviving relatives, friends and charities. Your will allows you to state your own wishes for how and to whom your property will be distributed after your death. You should think about to whom you want to leave gifts (bequests) and what you want to happen if that person dies before you. While your lawyer will help you decide what form to use for each gift you choose to give, here are a few simple examples to help you plan: A specific bequest is a gift of a specific item of property. For example, I give my wedding ring to my niece, Sarah. A general bequest is a gift of a sum of money. For example, I give $10,000 to my nephew, Matthew. A contingent bequest is a gift made on condition that a certain event occurs. For example, I give $25,000 to my friend Christina, if she survives me, or, if not, to my friend Joe. Depending on state law, a bequest left to a person who dies before you may pass to that person s descendants, or it may be invalidated. Your lawyer will work with you to ensure that your will addresses these possibilities for each of your gifts, to ensure that your wishes are met. Your residuary estate is the portion of your estate left after all expenses, debts and taxes have been paid, and after all specific, general and contingent bequests have been distributed. You may choose to divide the residuary estate between several beneficiaries. For example I give 80 percent of my residuary estate in equal shares to my nieces and nephews who survive me, and I give the remainder of my estate to the Human Rights Campaign Foundation (Federal Tax I.D ), located in Washington, D.C. You may wish to specify that a beneficiary s gift be held in trust for his or her benefit. For example, a minor child will get his or her inheritance at 18 unless your will states otherwise. Many parents choose to set up a testamentary trust to hold their child s inheritance until the child attains a certain age (e.g., 21, 25, 30 or older). Step 3 discusses trusts in more detail. WHAT TYPE OF BEQUEST TO CHOOSE? The difference between a specific bequest and a general bequest is that if the property mentioned in the specific bequest is not part of your estate when you die (e.g., it was sold during your lifetime), the recipient gets nothing while the recipient of a general bequest will get that sum as long as the estate is large enough. A contingent bequest can also be used to ensure that the intended recipient receives a sum of money if the specific asset is not available. 17

18 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN FINAL PLANNING THOUGHTS Your will can be simple or it can be complex. It depends on your relationships, your estate and what you want to accomplish. Remember that your will is the foundation of your estate plan, and it is yours personally. Be comfortable with your plan and with your understanding of how your will accomplishes it. Also remember that you can revise or replace your will any time.

19 STEP 2 THE CORE OF YOUR LIFE AND ESTATE PLAN STEP 2.3 UNDERSTANDING PROBATE Probate is the formal process by which a will is recognized by the local probate court as a valid document and by which the named executor is officially appointed to carry out administration of the estate as the will provides. The probate court will oversee the executor s administration of the estate. Creditors can file claims against the estate and seek payment from the estate assets. Any distribution of gifts from the estate will occur only after all debts, taxes and expenses of estate administration have been paid. Depending on the jurisdiction, probate can be a cumbersome, time-consuming and expensive process requiring numerous court filings. Many people choose to structure their estate plans to minimize or eliminate the need for probate through the use of revocable living trusts, asset titling and beneficiary designations. These alternatives are discussed in Step 3. If someone dies without a will, his or her survivors will be required to file a probate case. In this situation, the assets of the estate will pass not according to the wishes of the decedent, but according to the state s laws for intestacy (where no valid will exists). If you have not made an estate plan, your probate assets will pass to your closest living legal relatives, according to state law. If you are unmarried and you live in or own real estate in a state that does not legally recognize your relationship, the state will exclude your partner, and may not recognize your children. Every state has its own rules that govern the probate process. Some states have streamlined their probate procedures. Others continue to be mired in archaic rules that make the process time-consuming and expensive. Your lawyer will explain the probate process in your state. DOMICILES AND RESIDENCES Your will is offered for probate in the state that is your domicile (your permanent residence) at the time of your death. The law that controls how your will is interpreted is the law of your last domicile, not the law of the state that was your domicile when the will was drafted and signed. Therefore, it is important to have a local lawyer review your will if you set down roots in a new state. CHALLENGES TO YOUR WILL One purpose of the probate process is to resolve any challenges to the validity of your will. For example, if you are unmarried and leave a large portion of your estate to your partner, a relative who disapproves of your relationship could challenge your will. Your lawyer will suggest ways to protect your will against such challenges. 19

20 3STEP ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN

21 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN Step 2 discussed the key life and estate planning documents that should be a part of your life and estate plan, as well as the probate process. This Step discusses additional documents and tools that may further assist your life and estate plan. STEP 3.1 discusses the use of trusts to manage your assets. STEP 3.2 discusses titles to your real estate and some forms of personal property (e.g., cars). STEP 3.3 discusses managing your retirement benefits. STEP 3.4 discusses the use of different types of insurance in your life and estate plan. STEP 3.5 discusses business succession considerations. Your lawyer and financial adviser can guide you through the process of deciding whether one or more of the documents or tools discussed here should be incorporated into your plan. 21

22 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN STEP 3.1 CONSIDER A TRUST IN YOUR LIFE AND ESTATE PLANNING WHAT IS A TRUST? A trust is a legal instrument by which property is managed for the benefit of another. The owner of some property, referred to as the grantor or settlor, transfers title to that property into a trust. The trust is managed by one or more trustees, according to the instructions established in the trust instrument. The trust is managed for the benefit of beneficiaries named in the trust instrument. The terms of a revocable trust can be changed by the settlor; the terms of an irrevocable trust cannot be changed after the trust is established. There are many types of trusts. A few examples are revocable living trusts, testamentary trusts, special needs trusts, life insurance trusts and charitable remainder trusts, discussed below. Whether a trust is appropriate for your life and estate plan depends on what you are trying to accomplish with your plan. Your lawyer and financial adviser may recommend one or more type of trust as you discuss your plan with them. If you decide that a trust is appropriate for your life and estate plan, perhaps the most important decision you make will be selecting your trustee(s). The trustee should be someone who can manage the trust assets and maintain good relationships with the beneficiaries. The trust is managed like a business, to accomplish the purposes established by the trust instrument. Because the person best suited to know and carry out your intentions for the trust is not necessarily the person best suited to manage the financial concerns, it is common to appoint co-trustees often a person who knows you well and a financial institution so that both needs are met. WHAT IS A REVOCABLE LIVING TRUST? A revocable living trust is a trust that you create during your lifetime for your own benefit. If you choose to establish a revocable living trust, it becomes the centerpiece of your estate plan, and all of your solely owned non-retirement assets will be transferred to the trust. During your lifetime, the trust will be for your benefit and you can change or revoke it. You may serve as the trustee of the revocable living trust for so long as you are willing and able to do so. You also name a successor trustee to manage the trust if you are incapacitated or die. A LITTLE LATIN A living trust is often referred to as an inter vivos trust. Inter vivos is simply Latin for during life. The terms are interchangeable; legal documents will often use the Latin version. 22

23 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN The living trust becomes irrevocable when you die its provisions can no longer be changed. The trust document will include terms directing the distribution of trust property at your death and, therefore, is often referred to as a will substitute. You still need a will, but that will is much simpler than a normal will. This will is referred to as a pour-over will because it simply states that any remaining assets you own, not previously transferred to the living trust, are transferred ( poured over ) into the existing trust. The trust beneficiaries receive distributions of funds from the trust according to the terms you set up. The trustee will supervise the administration of the trust. There is no court supervision for this type of trust. The principal advantages of a revocable living trust are: Privacy a will is a public document, filed with the probate court upon your death, and anyone can go to the court and read the will. A revocable living trust document, on the other hand, is not filed with the probate court; hence the trust helps protect the privacy of your family and other beneficiaries. Avoiding probate none of the assets transferred to the trust during your lifetime pass through probate. Court supervision, and hence the time and cost for settling your estate, is significantly reduced. Providing for incapacity if you become incapacitated, managing assets in a revocable trust is often smoother than via a financial power of attorney alone. The successor trustee will have full authority to manage the assets in the trust for your lifetime benefit. TAX IMPLICATIONS For tax purposes, there is no difference between an estate plan via a will and an estate plan via a revocable living trust. Estate taxes are discussed in Step 5. WHAT ARE SOME OTHER TYPES OF TRUSTS? A testamentary trust is established by a provision of your will. It does not exist until your will is presented for probate. This type of trust is most often used to leave assets in trust for the benefit of a minor child (or other minor beneficiary) until he or she reaches a certain age (e.g., 18, 25, 30 or older), or to protect assets for a beneficiary who might not manage them effectively. In addition, testamentary trusts are used in some estate plans to minimize or eliminate transfer taxes. A special needs trust may be used to provide for a beneficiary who is disabled and receiving a government benefit, such as Supplemental Security Income (SSI). A special needs trust must be irrevocable and can be set up to provide income to the disabled person without adversely affecting SSI benefits or Medicaid eligibility. Special needs trusts can be complicated, so it is best to work with a lawyer who has experience setting them up. If the special needs trust is not created properly, the beneficiary may find their government benefits cut off, and the government may seek reimbursement for benefits received erroneously. A life insurance trust may be used to remove the value of a life insurance policy from your taxable estate for tax purposes. A life insurance trust must be irrevocable; during the policyholder s lifetime, the trust is named the owner and beneficiary of a life insurance policy so that, upon the policyholder s death, all death benefits from the policy are excluded from the policyholder s taxable estate for estate tax purposes. 23

24 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN A charitable remainder trust may be used to provide income for you, your spouse or partner, or someone else for life, with the remainder going to a charitable organization. A charitable remainder trust must be irrevocable. The charitable organization won t receive any benefits until after the death of the income beneficiaries. A charitable remainder trust can help you carry out your personal and philanthropic objectives in a tax-efficient manner. FINAL THOUGHTS Trusts can be powerful additions to your life and estate plan, and they can achieve a variety of goals and objectives. But trusts are not appropriate for everyone. Ask your lawyer whether one or more type of trust should be incorporated as a part of your life and estate plan. Keep in mind that trusts should be created in addition to and not in place of a valid will.

25 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN STEP 3.2 YOUR OPTIONS FOR TITLING REAL ESTATE Every piece of real estate has a deed. The deed states who owns (has title to) the property. Property can be held in many different ways. Your lawyer will need to see copies of deeds for all the property you own. If you own real estate in more than one state, you may need to consult with a lawyer in each state to ensure the deed will carry out your goals. HOW CAN I HOLD TITLE TO REAL ESTATE? Sole ownership is the way you hold individual title to real estate. The sole owner owns all rights to the property and can leave the property to anyone he chooses pursuant to his will. Tenancy in common is one way to hold joint title to real estate. It is a shared ownership where each owner has a share in the property. Two or more people can own property as tenants in common (cotenants), and their shares do not need to be equal. Each cotenant has an undivided interest in the property, meaning all have equal rights to access and use the entire property. An owner may leave his undivided share to anyone he chooses pursuant to his will; the recipient becomes a cotenant with the surviving cotenants. A tenancy in common is presumed in most states, unless the deed explicitly states a different type of joint ownership. Joint tenancy with right of survivorship is a second way to hold joint title to real estate. It is a shared ownership where (in most states) each owner has an equal share in the property. Two or more people can own property as joint tenants with right of survivorship. Each person has an undivided interest in the property and equal rights to the property. When one owner dies, the surviving owner(s) continue to own the entire property by operation of law, and title transfers automatically to the surviving joint owner(s) outside the terms of the deceased owner s will. Tenancy by the entirety ownership is offered in some states. Typically, only married couples can form a tenancy by the entirety. However, some states that recognize civil unions or domestic partnerships may extend this form of ownership to couples in those legal relationships. ANCILLARY PROBATE Your will is filed with the probate court in your home state. This probate process will handle your personal property and your real estate in your home state. If you own real estate in another state, your executor must file for ancillary probate with the probate court there. Because of differences in state laws, especially if you jointly hold property, it is crucial to ensure that real estate is properly titled in each state and distributed by proper will provisions. WILLS AND RIGHTS OF SURVIVORSHIP A clause in a will that purports to transfer one person s share of a joint tenancy is ineffective. The decedent s share in the property passes to the surviving joint tenants automatically upon death and is no longer part of the decedent s estate. 25

26 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN A tenancy by the entirety is a form of joint tenancy with right of survivorship. Both spouses own the entire property; upon the death of one spouse, the other spouse becomes the sole owner of the property. If the couple divorces, they become cotenants of the property, which becomes a tenancy in common. DIFFERENCES BETWEEN TENANCY BY THE ENTIRETY AND JOINT TENANCY A tenancy by the entirety differs from a joint tenancy in two ways. First, both spouses must consent to transfer or sell property held as a tenancy by the entirety. In a joint tenancy, one owner can transfer his share without the consent of the joint tenants (the new owner becomes a cotenant with the remaining joint owners). Second, a creditor who holds the debt of one spouse cannot obtain a lien against property held as a tenancy by the entirety; only creditors of both spouses jointly can claim the property. Conversely, creditors of a joint tenant can obtain a lien against the property held jointly. FINAL THOUGHTS Use caution when you decide to add another person s name to a deed, including your spouse or partner. There are significant legal consequences in doing so. Talk to your lawyer before you take that step. 26

27 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN STEP 3.3 PLANNING FOR YOUR RETIREMENT BENEFITS The subject of retirement benefits can be difficult for members of the LGBT community. Many company plans expressly stipulate that survivors benefits be provided only to a surviving spouse or natural or legally adopted children. This may vary with the type of benefit. Self-funded programs such as IRAs, 401(k)s or other employer-sponsored pre-tax savings plans or Keogh plans allow you to choose any beneficiary you want. RETIREMENT BENEFITS IN LIFE PLANNING Your retirement plan is a fundamental part of your life plan. Because there are many options available, planning for your retirement needs is beyond the scope of this Guide. Your financial adviser and lawyer are best suited to help you determine the most effective form of retirement plan for your individual circumstances. RETIREMENT BENEFITS IN ESTATE PLANNING Determining what happens with your retirement plan assets after you die is a core issue for most estate plans. All LGBT people should take three crucial steps: 27

28 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN Have your lawyer and financial adviser review your company retirement plan, if you have one, to see whether there are any restrictions on who may receive your benefits after your death. If your company retirement plan is restricted and your financial situation allows you to take advantage of IRAs or Keogh plans, you may want to set up plans to benefit your spouse, partner or other beneficiaries of your choice. Make sure you have designated a primary beneficiary and an alternate beneficiary for each of your retirement plan accounts. Marriage and divorce can affect retirement plan beneficiary designations automatically: A federal law, the Employee Retirement Income Security Act of 1973 (ERISA), controls many employer-sponsored retirement plans. For retirement plans governed by ERISA, your spouse must be named as the primary beneficiary unless he or she provides written consent for you to name another primary beneficiary of the account. In some states, the law may provide that beneficiary designations naming a spouse are nullified automatically upon divorce. Such provisions may apply to any asset, including retirement accounts. Remember that your will determines only who gets your probate assets. Your retirement accounts are considered non-probate assets, and these accounts will be distributed to your designated beneficiaries upon your death, regardless of any provisions you may make in your will. Without a proper beneficiary designation, the proceeds will be distributed according to default provisions of the retirement plan, which likely do not reflect your wishes. Make sure your beneficiary designations are up to date. TAX-DEFERRED RETIREMENT ACCOUNTS AND CHARITABLE GIVING If you plan to leave any assets to charity, retirement accounts are often the best assets to use. Distributions from tax-deferred retirement accounts to individual beneficiaries are taxed as ordinary income. However, if the designated beneficiary is a charitable organization, distributions will not be subject to income tax. Also, there is an estate tax deduction available for retirement assets left to charity that is not available for retirement assets left to individuals. See Step 7 for more information on charitable giving. 28

29 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN STEP 3.4 SHOULD INSURANCE BE A PART OF YOUR PLAN? You should discuss with your lawyer, your financial adviser and a reputable insurance agent whether life insurance, disability insurance and/or long-term care insurance should be a part of your life and estate plan to protect you and your family. Figuring out the best type of policies and coordinating with your estate planning lawyer will help maximize your plan s effectiveness. LIFE INSURANCE Life insurance can be used to provide security for your loved ones. It can also provide funds to pay estate taxes, if your estate consists largely of illiquid assets (e.g., real estate or a closely held business). Also, if the policy is owned by a life insurance trust, as discussed in Step 3.1, the insurance proceeds may not be subject to estate taxes. You should consider life insurance if you have dependent children, if your spouse or partner is dependent upon your income to maintain his or her standard of living, or if you are a business owner. In these situations, a life insurance policy could provide an important source of support for your family or your business after your death. There are many factors to consider when deciding how much life insurance to purchase. Your lawyer, financial adviser and insurance agent can help you determine the appropriate amount of life insurance for your particular situation. If you qualify for a new life insurance policy, you will need to consider whether you wish to purchase whole life or term life insurance. Term life tends to be cheaper; whole life allows you to create equity in the policy. Your choice will depend on why you want the insurance policy. Remember that your will determines only who gets your probate assets. Your life insurance proceeds are considered non-probate assets, and these proceeds will be distributed to your designated beneficiaries upon your death, regardless of any provisions you may make in your will. Without a proper beneficiary designation, the proceeds will be distributed according to default provisions of the insurance policy, which likely do not reflect your wishes. Make sure your beneficiary designations are up to date. 29

30 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN DISABILITY INSURANCE Many employers provide short- and long-term disability insurance for their employees. Depending on how the premiums are paid, these payments may be taxable income. If you buy your own disability insurance, the payments are tax-free. This can make a significant difference. Finding affordable disability insurance can be a challenge. But an accident could change your life and the lives of your family in an instant. Therefore you should consider disability insurance and understand your options. LONG-TERM CARE INSURANCE Long-term care insurance policies can cover home healthcare, nursing care, physical therapy and sometimes even more, depending on the policy. You should find a flexible plan that provides for different care options. Premiums vary and are based on duration and type of coverage. Considering long-term care insurance and understanding your options are important parts of the life planning process. 30

31 STEP 3 ADDITIONAL COMPONENTS OF YOUR LIFE AND ESTATE PLAN STEP 3.5 BUSINESS SUCCESSION PLANNING IF YOU OWN A BUSINESS If you are unmarried and your life partner is also your business partner, planning for business succession is essential to minimize taxes and enable your partner to continue to control the business. If, for example, the business is part of your estate and you do not plan effectively, your interest in the business will be disposed of in the same way as the rest of your estate. Consequently, your partner could wind up running the business with your family after your death. The lawyer who helped you set up your business can help you put a proper succession plan in place. 31

32 4STEP PLANNING FOR YOUR RELATIONSHIP AND FAMILY

33 STEP 4 PLANNING FOR YOUR RELATIONSHIP AND FAMILY This part of the planning process ensures that you and your loved ones are properly protected and cared for in your life and estate plan. STEP 4.1 discusses planning for eventualities in your relationships. STEP 4.2 discusses ensuring that your children are properly protected by your plan. If your lawyer specializes in estate planning and is not experienced with family law, especially with LGBT relationships, you should find an experienced family lawyer to work with your estate planning lawyer. As in other life and estate planning matters, your financial adviser should also be part of your planning. 33

34 STEP 4 PLANNING FOR YOUR RELATIONSHIP AND FAMILY STEP 4.1 PROTECTING YOUR RIGHTS AND YOUR RELATIONSHIP When you are in love, it seems as though nothing can ever happen to alter your relationship. However, it makes sense to make a plan regarding property rights and other obligations should your relationship end. It is easier to do when things are going well. You and your partner or spouse can enter into a written agreement clarifying your respective rights, obligations and responsibilities if your relationship ends. The agreement can be a good starting point in preparing for any contingency and setting a foundation for your life and estate plan. Domestic partnership agreements (DPA), also called cohabitation or joint living agreements, are useful for unmarried couples. A domestic partnership agreement identifies individual and jointly owned property, division of household expenses, bank accounts (joint or individual) and how property should be divided if the relationship ends. Prenuptial agreements are useful for couples considering marriage. These agreements can set forth each spouse s rights and obligations if you decide to end your marriage. The agreement can be enforced in court during a divorce proceeding. Postnuptial agreements are used by couples who are already married. Timing is the primary difference between pre- and postnuptial agreements. The 34

35 STEP 4 PLANNING FOR YOUR RELATIONSHIP AND FAMILY former is signed before the marriage; the latter after you get married. Both agreements can be enforced in court during a divorce proceeding. Unlike a will or trust, pre- and postnuptial agreements require that you have separate lawyers. This makes it much less likely a court will find the agreement unfair. ENDING RELATIONSHIPS In most states, when a married couple divorces, any gifts they have made to each other by will or by beneficiary designation, and any rights of survivorship, may be voided. This happens automatically; neither spouse needs to take action. The same is not true for unmarried couples, however they must expressly change their wills, beneficiary designations and property titles when they separate. If they fail to do so, they may unintentionally leave their assets to a former partner. If you move to a new state after formalizing your relationship with a civil union or domestic partnership, your relationship may be treated as if you are unmarried. Therefore your lawyer may suggest that you make your own contractual arrangements that clarify each partner s rights and responsibilities, should the relationship end, as part of your life and estate planning, rather than relying on provisions of state law. SPOUSAL ELECTIVE SHARE Many states have a spousal elective share law that prevents one spouse from disinheriting the other. These laws give a surviving spouse the right to take a fixed fraction of the deceased spouse s estate even if the will provides for a lesser amount. Couples do have the right to limit inheritance rights pursuant to a written agreement, so long as both of them are aware of their individual spousal rights. Failure to consider those rights can wreak havoc on a carefully prepared estate plan. 35

36 STEP 4 PLANNING FOR YOUR RELATIONSHIP AND FAMILY STEP 4.2 PROTECTING YOUR PARENTAL RIGHTS AND YOUR CHILDREN Family formation can be a complicated process due to the complexities of family law in general. For LGBT people, the new and challenging legal issues affecting the LGBT community present more challenges. It is important that you take the appropriate steps to protect your parental rights, your children and your family. SHARED CUSTODY Same-sex couples raising children together may find that only one of them is legally recognized as a parent. The other may be treated as a legal stranger to the children. A shared custody agreement can provide specific legal rights to the unrecognized parent. A shared custody agreement allows you to stipulate your acceptance of certain rights, responsibilities and obligations in relation to the children. The biological or adoptive parent can waive his or her superior rights in favor of sharing custody and parenting rights and responsibilities with his or her spouse or partner. PARENTAGE Children born to or adopted by a married couple are generally considered children of the marriage. However, states are still wrestling with how to correctly define parent for children born via assisted reproductive technologies such as in-vitro fertilization or surrogacy, where the legal and biological 36

37 STEP 4 PLANNING FOR YOUR RELATIONSHIP AND FAMILY relationships are not identical. For same-sex parents, this issue is critical because, depending on the laws of your state, being married may not be enough to protect your parental rights. And because laws vary from state to state, even if your home state recognizes you as a parent, without an adoption or biological connection, if you travel to or move to another state, you may not be recognized as your child s parent. Some states allow second-parent adoptions the adoption of a child by a second person in the home who is not a legal parent of the child. Additionally, some states allow a court to issue a judgment of parentage, which is a court order defining who the legal parent(s) of a child are. All states should recognize an adoption or parentage order. If you are not a biological parent, you should get either a second-parent adoption or a judgment of parentage, if available. This can protect your children by ensuring that both of you have rights to care for the child if something happens to one of you. SURROGACY AND DONOR AGREEMENTS If you decide to use a surrogate, egg donor, embryo donor or sperm donor to have a child, you need to have in place a written agreement with the surrogate and/or donor to protect your parental rights, your children and your family. Surrogacy and donor agreements are important legal documents that need to be prepared by a lawyer familiar with this area of law. If your lawyer does not draft the agreement, be sure to bring any agreement you are being asked to sign to your lawyer to review before you sign it. Many of these standard agreements are not designed for the unique planning issues faced by LGBT individuals, couples and their families. Without comprehensive surrogacy and donor agreements in place, your parental rights, your children and your family could face legal challenges from the surrogate or donor.

38 5STEP 3ADDITIONAL TAX ELEMENTS CONSIDER- OF ATIONS YOUR LIFE AND ESTATE PLAN

39 STEP 5 TAX CONSIDERATIONS Federal law permits you to give gifts during your lifetime and after your death free from taxes, within certain annual and lifetime limits; gifts above these limits may be subject to federal gift or estate tax. Some states also have gift and estate taxes. This Step provides an overview of these tax rules: STEP 5.1 discusses the gift tax rules. STEP 5.2 discusses the estate tax rules. Gift and estate tax rules are a complex part of the tax code, and if you have a large estate, you should work with a tax lawyer and your financial adviser to manage your assets to minimize any taxable impact on you and on the beneficiaries of your gifts. 39

40 STEP 5 TAX CONSIDERATIONS STEP 5.1 UNDERSTANDING GIFT TAX RULES WHAT IS THE GIFT TAX? Federal tax law recognizes gifts of money or property that you give to another person during your lifetime, so long as you receive less than full value of the gift in return. Gifts of up to $14,000 per year are excluded from federal taxation. This gift tax annual exclusion applies to each gift you give you can give gifts to multiple people, and each gift under the exclusion amount is free of tax. Gift amounts above the annual exclusion amount are taxable and must be reported on a gift tax return. Usually the giver is responsible for the tax, although it is possible to arrange to have the recipient pay the tax. Each person also has a lifetime federal gift tax exemption ($5.43 million). This lifetime exemption applies to gifts above the annual limit; as you give gifts in excess of the annual limit, the excess is deducted from your lifetime exemption. For example: Joe gives a $20,000 annual gift to each of his five nieces and nephews each year. $14,000 of each gift is covered by the annual exclusion. The remaining $6,000 of each gift is applied to Joe s lifetime exemption, reducing the remaining exemption by $30,000 each year. WHAT IS A TAXABLE GIFT? The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. Three common exceptions are: (a) tuition or medical expenses you pay on behalf of someone else, (b) gifts given to your spouse, and (c) gifts made to charities. FEDERAL TAX EXEMPTIONS The IRS regularly adjusts the annual gift exemption, the lifetime gift and estate tax exemptions, and the gift and estate tax rates based upon annual inflation. The values given in this section are for the 2015 tax year. After you have consumed your lifetime gift tax exemption, additional taxable gifts will trigger a federal gift tax. The gift tax rate is 40 percent. In addition to the federal gift tax exemption, there is the unlimited gift tax marital deduction, which allows one spouse to transfer an unlimited amount of money and assets to the other spouse during his or her lifetime without incurring any federal gift tax. Couples in non-marriage relationships, such as civil unions or domestic partnerships, can use the annual and lifetime gift tax exemptions, but not the marital deduction. A small number of states also have a gift tax. Your tax adviser can help you address any state tax issues. TAX CONSIDERATIONS FOR LIFETIME GIFTS You should understand the tax consequences of any lifetime gift you are considering prior to making the gift. You should consult a knowledgeable tax adviser to make sure you handle the transaction correctly before taking action. It is easier and cheaper to seek advice before acting than to fix the transaction after the fact. 40

41 STEP 5 TAX CONSIDERATIONS STEP 5.2 UNDERSTANDING ESTATE AND INHERITANCE TAX RULES WHAT IS AN ESTATE TAX? The federal government and a number of states impose an estate tax. An estate tax is based on the net value of all property that you own at your death. The tax is collected only if the value of the assets exceeds the applicable exemption amount. WHAT IS AN INHERITANCE TAX? A number of states impose an inheritance tax. An inheritance tax falls on someone who inherits any of your property. It is collected from those who are subject to the inheritance tax under state law. Spouses, for example, are not subject to inheritance taxes. Children, nieces and nephews, siblings and friends, however, can be. WHAT ARE THE APPLICABLE FEDERAL ESTATE TAX RULES? The federal estate tax will apply to your estate if the total value of the assets at your death exceeds the federal estate tax exemption amount ($5.43 million per person). The federal estate tax exemption is shared with the federal lifetime gift tax exemption discussed in step 5.1, so that the federal estate tax exemption is reduced by the amount that counted toward the federal lifetime gift tax exemption before your death. The estate tax rate is 40 percent. 41

42 STEP 5 TAX CONSIDERATIONS In addition to the federal estate tax exemption, there is the unlimited estate tax marital deduction, which allows you to transfer an unlimited amount of money and assets to your surviving spouse without incurring any federal estate tax. Also, the federal estate tax exemption is portable between spouses. If the first spouse to die does not use his or her entire estate tax exemption, the unused exemption can be added to the surviving spouse s available estate tax exemption, as shown by this example: CHARITABLE GIVING In addition to the federal estate tax marital exemption, there is also an unlimited estate tax charitable deduction that allows you to transfer unlimited money and assets to a charitable organization without incurring any estate tax. Susan and her wife, Ellen, married in Massachusetts in 2010 and resided in Massachusetts at the time of Ellen s death in August All of Ellen s property passed to Susan according to the terms of Ellen s will. Because the transfer of Ellen s property to Susan falls within the unlimited estate tax marital deduction, it does not consume any of Ellen s federal estate tax exemption, and no estate tax is due. Assuming Ellen s executor makes an appropriate portability election, Susan s estate, at her death, will have a total federal estate tax exemption of $10.86 million (two times the lifetime federal gift tax exemption of $5.43 million). WHAT ARE THE APPLICABLE STATE ESTATE AND INHERITANCE TAX RULES? Many states have an estate tax or an inheritance tax, and a few states have both an estate tax and an inheritance tax. The state estate tax situation is very fluid, with some states planning to repeal their estate tax in the near future. You should remember that state estate tax laws will apply in your home state and in any state where you own real estate. Your tax adviser can help you address any state tax issues. PLANNING FOR ESTATE AND INHERITANCE TAXES One of the main goals of life and estate planning is minimizing or eliminating estate and inheritance taxes through careful planning. Working with an experienced tax adviser as you develop your estate plan with your lawyer will help you decide what works best for you. 42

43 6STEP UNDER- STANDING FEDERAL BENEFITS

44 STEP 6 UNDERSTANDING FEDERAL BENEFITS Federal law provides numerous benefits that make up part of your life and estate planning, such as retirement income, disability income and survivors benefits for family you leave behind. This section provides a brief introduction to some of the major federal benefits that should be part of your planning. Federal agency websites contain much more information that you can review. Your lawyer will also advise you on other benefits that might be available for your plan, depending on your particular circumstances. 44

45 STEP 6 UNDERSTANDING FEDERAL BENEFITS THE IMPACT OF THE SUPREME COURT S MARRIAGE DECISIONS When the Supreme Court overturned DOMA, over 1,100 federal benefits, protections and programs became available to married same-sex couples. Unfortunately, differences in state marriage recognition laws meant that some married couples still couldn t receive some federal benefits. Now that marriage equality is available nationwide, federal benefits are available to all married couples. If you were previously denied a federal benefit because your home state did not recognize your marriage, you should reapply. SOCIAL SECURITY Social Security is a federal program that includes retirement, disability and survivors benefits for qualified persons. Almost all workers pay into the Social Security retirement program (state government employees are a common exception). Eligibility for and the amount of your Social Security retirement benefits are determined by a formula. In addition to retirement benefits, the Social Security Administration (SSA) also manages the programs that provide disability benefits to workers who are no longer able to work. People who are 65, blind, disabled or ineligible for Social Security disability benefits and have no other source of income may qualify for Supplemental Security Income assistance. Social Security benefits can vary based on a person s work history, income level and marital status. A worker s spouse may also be eligible for benefits based either on his or her own work record or on a spouse s work record, whichever is greater. A surviving spouse has the right to apply for survivorship benefits. Social Security Retirement Benefits A person can apply for Social Security retirement benefits no sooner than age 62. Your retirement age for full benefits depends on the year you were born. If you take Social Security retirement benefits at age 62, there is a permanent 45

46 STEP 6 UNDERSTANDING FEDERAL BENEFITS reduction in the amount paid. Anything you earn from a job after that point will result in a dollar-for-dollar reduction in the Social Security retirement benefits you receive until you reach your full retirement age. Here s an example: If you were born in 1952, your full retirement age is 66. Once you turn 66, you can apply for Social Security retirement benefits and receive the full amount. If you continue to work, your benefits will not be reduced by the amount of the wages you receive. If you wait to retire until you turn 70, you maximize the amount of retirement benefits. For more detailed information about Social Security retirement benefits and to obtain a copy of your Social Security statement detailing your particular benefits, visit the SSA website, Social Security Spousal Benefits There are several benefits available to spouses: spousal retirement benefits, spousal disability benefits, surviving spouse benefits, lump-sum death benefits and child s benefits. In August 2013, the SSA began processing spousal retirement benefit applications for married same-sex couples living in states that recognized their marriages, and advised same-sex couples in other states to apply for other benefits. Now that marriage equality is nationwide, the SSA should process all applications. For couples in civil unions or domestic partnerships, if your state s laws of intestacy allow one partner to inherit from the other, you should apply as well. Refer to the SSA s website at for the latest information. With certain limited exceptions, to be eligible for the spousal retirement benefit or spousal disability benefit, you must have been married to your spouse for at least 12 months before applying and be at least 62. A spouse can qualify for the surviving spouse benefit or lump-sum death benefit if the couple was married for at least nine months and the surviving spouse is at least 60 years old (50 years old, if disabled). There are additional requirements to establish eligibility for these programs. SSA s website provides extensive information on these programs and contact information for making further inquiries, or you can contact your local SSA office for additional information. Please visit the SSA website, for additional information or to find your local SSA office. Your local SSA office can help you apply for spousal benefits. The SSA office should accept any application while the agency is working on its guidelines and making decisions about handling applications from married same-sex couples or surviving spouses. 46

47 STEP 6 UNDERSTANDING FEDERAL BENEFITS MEDICARE Medicare is the federal health insurance program for people age 65 and older. There are four parts to Medicare: hospital insurance (Part A), medical insurance (Part B), Medicare Advantage (Part C) and prescription drug coverage (Part D). Most recipients use Parts A, B and D. You can sign up for Medicare even if you do not plan to retire when you turn 65. You should start the application process at least three months before you turn 65. Medicare Part A is free for almost everyone. Premiums are charged for Parts B and D. If you do not sign up for Part B during the initial enrollment period when you sign up for Part A, you will be assessed a 10 percent annual penalty and required to wait until the next open enrollment period. You can submit your application for Medicare online at Marital status affects many aspects of Medicare, including your spouse s work history and the availability of medical insurance through a spouse s employer. The definition of marital status for Medicare is the same as for Social Security. If you have health insurance from your employer, it is important to check with the employer and find out if your coverage changes when you turn 65. This will help you decide if you want to sign up for Medicare. Some employers do not fully understand all Medicare requirements, so it is important to verify the information you receive from your employer with the SSA. Ask your employer to give you any information in writing. For more information on Medicare, visit the Medicare website, gov, and the SSA s Medicare page, 47

48 STEP 6 UNDERSTANDING FEDERAL BENEFITS FEDERAL TAXES Since August 2013, the IRS has considered married same-sex couples as married for purposes of federal taxes, regardless of what state they live in. Both spouses are entitled to the unlimited gift and estate tax marital deductions for estate planning purposes; can file joint federal income tax returns; and can claim appropriate dependents for federal income tax purposes. You should discuss the full extent of these federal tax rights with your tax adviser. You should also consult with your lawyer and financial adviser to determine if changes to your estate or financial plans are necessary or advisable. FEDERAL EMPLOYEES Since June 2013, the Office of Personnel Management (OPM) has ensured that a legal same-sex spouse of a federal employee can be enrolled in all federal benefit programs available to federal employees. There are numerous benefits available to the spouse of a federal employee. These include rights to spousal survivorship benefits, health insurance, longterm care insurance, and family and medical leave. The situation may be more complicated for married same-sex couples if the federal employee retired before the Supreme Court ruled on DOMA. If you or your spouse is a federal employee, you should contact OPM to determine your spousal rights and benefits. OPM s website, provides extensive information on federal benefit programs for current and former federal civilian employees and contact information for making further inquiries. MILITARY PERSONNEL Since August 2013, the Department of Defense (DoD) has provided spousal and family benefits, regardless of sexual orientation, as long as service member-sponsors provide a valid marriage certificate. Entitlements such as TRI- CARE medical insurance enrollment, basic allowance for housing (BAH) and family separation allowance are retroactive to June 26, The DoD will also grant the same benefits to legally married same-sex spouses of DoD civilian employees. The Department of Veterans Affairs (VA) is controlled by a complicated set of statutes. Now that all states recognize same-sex marriages, all VA spousal benefits should be available. Refer to the VA s website at for the latest information. DISCHARGE STATUS UPGRADES If you were discharged under Don t Ask, Don t Tell (DADT) or prior regulations, your discharge status may affect your eligibility for veterans benefits. When DADT was repealed, the Department of Defense issued guidance for veterans seeking to upgrade their discharge status. Veterans from as far back as World War II have successfully petitioned to have their discharge paperwork changed. OutServe-SLDN provides information on seeking an upgrade and can connect you with attorneys who will help you free of charge. Visit their website at 48

49 STEP 6 UNDERSTANDING FEDERAL BENEFITS IMMIGRATION After DOMA was overturned, the Department of Homeland Security (DHS) announced that same-sex couples married under the laws of marriage equality states are considered married for purposes of immigration law. This should now be the case nationwide. This allows American citizens to sponsor their foreign-born spouses for permanent residence status. Additionally, foreign same-sex marriages will be recognized, allowing a married foreign national who enters the country on a work visa, asylum petition or similar means to be accompanied by his or her spouse. If you or your spouse is not a U.S. citizen, you should discuss your life and estate planning needs with an immigration lawyer familiar with LGBT issues, as well as with your estate planning lawyer. Non-citizens are not eligible for many federal spousal benefits, and your plan may change based on immigration status. 49

50 7STEP CREATE YOUR LEGACY OF EQUALITY

51 STEP 7 CREATE YOUR LEGACY OF EQUALITY LEGACY GIVING Many of us volunteer our time and make gifts to causes close to our hearts. We are often generous supporters of LGBT organizations. This spirit of giving is important to us in life, and an important consideration in how we plan for our estates, too. While lifetime gifts to charity may reduce your income taxes, and gifts as part of your estate plan may reduce your estate and/or inheritance taxes, these gifts are most often made for personal, intangible reasons. WRITING YOUR LIFE STORY: ENSURING EQUALITY FOR FUTURE GENERATIONS Throughout our lives, there are moments when we pause to reflect on what we have achieved and what we hope to accomplish. We consider how to write each chapter of our life story in a way that embodies our values in word and deed. Your support of the Human Rights Campaign reflects your values values of justice, equality and compassion. A gift to HRC in your will, trust or by beneficiary designation is a way to ensure your values live on for future generations. 51

52 STEP 7 CREATE YOUR LEGACY OF EQUALITY Leaving gifts for friends, loved ones and the causes you champion is also a way of expressing your hopes and dreams for the future. Your commitment to a future of equality and fairness for all can be part of your enduring legacy the capstone of your life. This Guide is a starting point for considering how you can make sure your life story is joined forever with the story of the fight for equality that is the Human Rights Campaign. LEGACY GIFTS TO HRC AND THE HRC FOUNDATION In any social movement, achieving legislative victories is only one way to measure success. Changing people s lives matters just as much. For more than 30 years, HRC and the HRC Foundation have worked to achieve equality for LGBT people while encouraging them to live their lives openly even as we seek to change the hearts and minds of all people to the side of equality. Our work is national in scale, but personal in impact felt when an LGBT person visits a sick partner or child in a hospital... goes to her job without fear of being fired... is welcomed into a faith community... or walks through school hallways confident that harassment will not be tolerated. Much has changed since our founding in You have been an important part of the HRC story. Thanks to you, what had seemed like a faraway dream back then is now in sight. But we need your help to achieve full equality. Despite recent historic gains, the culture war against LGBT people continues. A gift from your estate can help make your personal dream of fair and equal rights for future generations come true. HRC and the HRC Foundation are two separate but affiliated organizations. Because of HRC s grassroots lobbying and political work, gifts to HRC (Federal Tax I.D ) are not tax-deductible. Gifts to the HRC Foundation (Federal Tax I.D ) are fully tax-deductible based on the HRC Foundation s entirely nonpolitical, educational and outreach mission. When you are deciding how to create your legacy for equality, the tax consequences of a particular gift strategy can often be a consideration. If the tax consequences of your gift are not a consideration for you, a gift to HRC will give us the greatest flexibility in putting your gift to work on behalf of the LGBT community. Either way, your gift will be invested in the shared mission of a future of equal rights for all people. THE HRC EQUALITY CIRCLE The HRC Equality Circle is a special appreciation program for individuals who have included HRC or the HRC Foundation in their estate plans. Please let us know if you have done so. Providing us with documentation of your gift is the best way to ensure that we receive the gift you intended for us, and it enables us to confer on you the benefits and recognition accorded Equality Circle members. THE MOST POPULAR WAY TO GIVE FOR THE FUTURE: FLEXIBLE BEQUESTS A bequest is the most popular way to honor and perpetuate your part in the story of the fight for equality: You retain control of your assets during your lifetime and can change your beneficiaries at any time. Just a few sentences in your will or trust complete your gift. 52

53 STEP 7 CREATE YOUR LEGACY OF EQUALITY Bequests can be arranged to provide for loved ones and for HRC. Regardless of the size of your gift, your contribution will help ensure the future of the LGBT movement. Here are the three most common ways to designate HRC as a beneficiary: To leave the majority of funds to your loved ones, name HRC the beneficiary of a specific amount or percentage of your estate. To leave HRC what s left after loved ones are provided for, use a residuary bequest. To leave your estate to family and friends, unless you outlive one of your beneficiaries, use a contingent bequest. SIGN YOUR NAME, CHANGE THE FUTURE: LEVERAGING RETIREMENT ASSETS FOR EQUALITY Retirement assets are among the most heavily taxed, making them an ideal resource for charitable giving once you no longer need the assets yourself. As the charitable affiliate of HRC, the HRC Foundation is exempt from paying the taxes that might otherwise be owed. Consider making the HRC Foundation a beneficiary of your retirement assets and leaving other less-heavily taxed assets to loved ones. Be sure to let us know if you have included the HRC Foundation as a beneficiary of a retirement account. Providing us with documentation is the best way to ensure that we receive the gift you intended for us. Here is the language to use: Human Rights Campaign Foundation (Federal Tax I.D ) INCREASE YOUR RETIREMENT INCOME WITH A GIFT THAT PAYS YOU BACK Of all the gifts that pay you back, the charitable gift annuity is the simplest, most affordable and most popular. A gift annuity enables you to provide dependable annual income for yourself or loved ones while helping to secure a future of equality for the LGBT community. EXAMPLE BEQUEST LANGUAGE If you have decided to leave a gift to HRC or the HRC Foundation in your will or trust, please use the sample bequest language below to share with your lawyer: To make your gift to HRC (non-tax-deductible): I give and bequeath (dollar amount, percentage of residuary estate, etc.) to the Human Rights Campaign (Federal Tax I.D ), located in Washington, D.C. To make your gift to the HRC Foundation (tax-deductible): I give and bequeath (dollar amount, percentage of residuary estate, etc.) to the Human Rights Campaign Foundation (Federal Tax I.D ), located in Washington, D.C. CREATE YOUR LEGACY OF EQUALITY IN THREE EASY STEPS 1. Check your retirement account statement for the phone number and website of your retirement plan administrator. 2. Request or download a beneficiary designation form. 3. Designate the HRC Foundation as a partial, contingent or sole beneficiary of your account. Sign and return the form to your plan administrator and keep a copy for your files. You make an irrevocable gift using cash, stock or real estate (our minimum age is 65 and our minimum amount is $10,000). You receive annual income at an attractive rate for as long as you live, no matter what happens in the stock market or the economy. You help ensure equality for future generations. 53

54 STEP 7 CREATE YOUR LEGACY OF EQUALITY Gift annuities can be arranged for up to two beneficiaries, making annuities a great retirement and estate planning tool for couples, whether or not they are married. If either beneficiary passes away, the surviving beneficiary will continue to receive the full annuity payment each year for life. Ask us for a customized illustration showing how a charitable gift annuity could benefit you. We ll calculate your payments and tax benefits based on your age and a sample gift amount, without obligation and in confidence. Just give us a call at (866) or adam.swaim@hrc.org. There are other ways to structure an estate gift to HRC. Please contact us to discuss your objectives. We ll help tailor your gift to achieve your goals. 54