You’re Dead? That Won’t Stop the Debt Collector

This article appeared in the NY Times on March 4, 2009. Enjoy!

http://www.nytimes.com/2009/03/04/business/04dead.html

Estate Planning for Same Sex Couples

Although same sex marriages are now legal in Connecticut, the ruling does not improve the treatment of same sex couples under federal law. Even though Connecticut recognizes same sex marriage, married same sex couples are still viewed as strangers under federal law, especially the tax code.

Federal law confers tangible legal and tax benefits to heterosexual couples, however these benefits and protections are not afforded to same sex couples, even when they are married under state laws, like Connecticut’s. There are over 1000 marriage rights afforded to married heterosexual couples that do not apply to married same sex couples. The unlimited marital deduction is a good example of how similarly situated people are treated differently under the US Tax Code. This deduction allows a spouse in a heterosexual marriage to transfer an unlimited amount of wealth to their spouse without incurring any gift or estate tax. This tax provision is not available to same sex couples. Because same sex couples lack these benefits and protections, they must create these benefits through the use of estate planning documents and other contracts.

Same sex couples (married or not) need to take extra measures to shield their wealth from the federal government as well as protect the rights of their spouse or partner. In order to ensure the transfer of your assets to your partner or spouse at your death a Last Will and Testament is the bare minimum. A Will however, will not be enough to mitigate the lack of an unlimited marital deduction between same sex spouses. Furthermore, Wills often invite Will Contests which could tie up your estate for long periods of time. A better estate planning course for same sex couples (married or not) is a Revocable Living Trust (RLT). An RLT does everything a Will does; it controls the disposition of your assets, as well as appoints Executors and Guardians for minor children.

Revocable Living Trusts contemplate much more than a Will does. An RLT is a private document, thus the time, oversight and public nature of the Probate Court is avoided. An RLT also contemplates the unfair tax treatment of same sex couples and works to mitigate estate tax issues. Revocable Living Trusts are a great Probate avoidance mechanism, which also have some great estate tax benefits for both same sex married couples and heterosexual couples.