 |
| Estate Planning For Non-Traditional Couples In Virginia |
|
By: Michael B. Hamar, Esquire ESTATE
PLANNING FOR NON-TRADITIONAL COUPLES IN
VIRGINIA BACKGROUND: In
addition to the usual issues of managing assets, a major issue for unmarried
heterosexual couples and same-sex couples in Virginia is how to ensure that
their assets go to the individuals or others they want upon their death. Without a valid will, long-time partner regardless of gender
receives nothing under current Virginia statutes governing intestate succession.
In addition, both same-sex couples and unmarried heterosexual couples
must consider that if children are involved, only the biological (or adoptive)
parent of a child is usually recognized by Virginia law as the legal guardian.
Also, minor children of the non-biological or non-adoptive parent in the
unmarried and/or same-sex couple will not receive anything under current
Virginia statutes governing intestate succession.
Moreover, legal guardianship could revert to someone other than the
surviving member of the unmarried or same-sex couple.
Thus, it is of critical importance that both unmarried
heterosexual couples and same sex couples have up to date estate planning
documents in place to cover the distribution of their assets upon their death.
Likewise, legal arrangements need to be in place to provided for issues
of legal guardianship if the couple has minor children.
For same sex couples in Virginia, the recently enacted “Affirmation of
Marriage Act” - i.e., § 20-45.3, Code of Virginia of 1950, as amended
(“Virginia Code”), effective July 1, 2004, adds the additional hurdle that
the estate planning documents be drafted so as not to purport “to
bestow the privileges or obligations of marriage,” whatever that phrase may
encompass.
In addition to ensuring that assets go to the desired parties, unmarried
couples and same sex-couples have increased hurdles in deferring payment of the
estate and other taxes. For married heterosexual couples, spouses are completely
exempt from the federal estate tax. For
unmarried couples or same-sex couples who cannot marry, this means of reducing
estate taxes is non-existent. Moreover,
unlike the situation of married heterosexual couples, changing the title to
assets by the member of an unmarried or same-sex couple during their lifetime to
joint ownership with their partner could result in a gift subject to tax.
By example, when one person purchases a home in their individual name and
later puts it in his or her partner’s name as well, the couple could incur
significant tax penalties. Married heterosexual spouses, on the other hand, can
transfer property without penalty. These legal realities make it more important for unmarried couples and same-sex couples to consider other estate planning methods. Some examples are (i) the $11,000 annual gift tax exemption, (ii) charitable gifts and/or (iii) irrevocably transferring ownership of assets during one's life (often through a trust) so they are not included in one's taxable estate. Advantages and disadvantages of these methods vary with each individual situation. As a result, estate planning in this context is not an area for a do-it-yourself approach or the use of forms derived off of some Internet site (which may be modeled on the laws of some other state) or other do-it-yourself approaches. Various organizations have estimated that over 1,000 state and federal laws exist in aggregate which serve to benefit or provide protection for relationships between married heterosexual couples, none of which are available to same-sex and unmarried heterosexual couples.
What should unmarried and same-sex couples do?
There are some things that can be done to provide for some of the legal
protection automatically conferred on married couples.
Unfortunately, all too often these relatively simple steps to avoid the
adverse and/or unexpected effects of current law are not taken. NECESSARY
DOCUMENTS AND STEPS: There
are some basic documents and steps that every unmarried couple and every
same-sex couple should have prepared and duly signed.
These include:
Will - A will specifies how
you wish your property to be distributed upon your death. In a will, you
designate the person you wish to handle your estate -- your partner or another
individual. Without one, your partner receives absolutely nothing.
Pursuant to § 64.1-46 of the Virginia Code,
anyone who is over the age of 18 years and not mentally incompetent may
make a will and thereby dispose of any estate to which he shall be entitled, at
his death, including any estate, right or interest to which the testator may be
entitled at his death, notwithstanding he may become so entitled subsequently to
the execution of the will. Inasmuch as neither § 64.1-46 or other provisions of
the Virginia Code restrict permitted devisees to spouses or blood relatives,
both unmarried heterosexual couples and same-sex couples may make wills leaving
assets to their partners.
Trust - A properly established
and funded trust avoids publicly probating assets owned by the trust at the time
of one’s death and is more difficult to challenge in court than a will.
In addition, a trust can provide beneficiaries with creditor protection
in certain circumstances. Properly structured, a trust can provide support for one’s
surviving partner for the remainder of his or her life, with the remainder to
pass to other relatives and designated beneficiaries, bypassing potential taxes
associated with the surviving partner's estate. Chapter 4, Title 26 of the Virginia Code governing the
appointment, qualification, resignation, removal of fiduciaries, including
trustees, contains no provision restricting
permitted trustees or trust beneficiaries to spouses or blood relatives.
Therefore, both unmarried heterosexual couples and same-sex couples may
create trusts naming their partners as beneficiaries in a manner that does not
purport “to bestow the privileges or obligations of marriage.”
Health Care Power of Attorney
- A health care or medical power of attorney allows one’s partner regardless
of gender to make medical decisions on your behalf in the event you are not able
to do so due to incompetency or other incapacity. Properly drafted, a health care power of attorney can
also ensure hospital visitation rights to the designated attorney-in-fact
Advanced Medical Directive -
§ 54.1-2983 of the Virginia Code provides that any mentally competent adult
may, at any time, make a written advance directive (i) authorizing the
providing, withholding or withdrawal of life-prolonging procedures in the event
such person should have a terminal condition, and (ii) appointing an agent to
make health care decisions for the declarant under the circumstances stated in
the advance directive if the declarant should be determined to be incapable of
making an informed decision. Advance
medical directives must be signed by the declarant in the presence of two
subscribing witnesses who cannot be the spouse or blood relatives of the
declarant.
There is no statutory restriction that one’s agent must be a spouse or
blood relative. Rather, §54.1-2982
of the Virginia Code provides that under any such advance medical directive, an
agent means “an adult appointed by the declarant under an advance directive,
executed or made in accordance with the provisions of § 54.1-2983, to make
health care decisions for him. . ." Such authority includes visitation
rights, provided the advance directive makes express provisions for visitation.
Therefore, properly drafted and executed advanced medical directives by a
same-sex couple should not be deemed to “bestow a privileges or obligations of
marriage.”
General/Business Power of Attorney
- This form of power of attorney allows a member of either an unmarried couple
or a same-sex couple to authorize their partner to handle their financial
affairs in the event of disability or unavailability.
Title on Deeds and Accounts -
How title to property is held can effect both future
ownership and tax liability. Joint tenancy with rights of survivorship,
for example, will ensure that the surviving partner will have full ownership
upon the death of the deceased partner and avoid ownership disputes with
surviving blood relatives. However,
it can create certain negative estate tax treatment depending on the size of
one’s taxable estate. Historically, deeds creating a tenancy by the entirety
have been reserved for husband and wife couples.
In light of the Virginia Affirmation of Marriage Act cited above, such a
deed conveying title to a same-sex couple even though validly married in another
state such as Massachusetts would not be effective in Virginia.
Beneficiary Designations -
Most securities and retirement accounts provide for the designation of
beneficiaries. These should be
reviewed periodically to ensure that desired goals are achieved and also should
include the designation of contingent beneficiaries to ensure the desired
parties are named in the event of the death of the principal beneficiary.
Life Insurance - Properly
utilized, life insurance can provide funding for payment of estate taxes,
outstanding mortgages, charitable trusts, education of minors, and other
functions. ESTATE TAX
EXCLUSION:
The degree of detail and sophistication of one’s will, trust, and/or how
designation of beneficiaries are handled will depend in large part of the size
of one’s anticipated taxable estate. During
2004 and 2005, the gross value of an estate that does not exceed $1.5 million
will be excluded from federal income tax filing requirements. Although $1.5
million is a significant amount of money, if you own a home, business,
retirement account and/or a life insurance policy, it is possible to own assets
of $1.5 million or more. For 2006,
2007, 2008, the estate tax exclusion increases to $2 million. In 2009, the
estate-tax exemption will increase to $3.5 million and remain there, pending any
legislative changes. In order to
defer and/or minimize potential estate tax liability it is essential that the
professionals advising an unmarried couple or same-sex couple be provided with
an accurate schedule of assets owned, including IRA, 401(k) and other retirement
accounts and any applicable life insurance policies. OTHER POSSIBLE
DOCUMENTS: In
addition to the documents described above, depending upon a couple’s
circumstances, including if there are minor children living in the home, one or
more additional documents may be considered in the estate planning process.
These are as follows:
Child Custody Agreement - If
an unmarried couple or same-sex couple have children or plan to raise one or
more children together, they should consider some sort of custody and care
agreement stating their intentions and ideally addressing custody issues in the
event of the death of one or both partners.
Such an agreement should be prepared with the assistance of a Virginia
attorney experienced in family law and child custody matters.
In the situation of a same-sex couple this is particularly true in light
of the broad language of the Virginia Affirmation of Marriage Act which might be
construed by a court include parenting arrangements as attempting to “bestow
the privileges or obligations of marriage.”
Unmarried couples and same-sex couples who do not have children and are
thinking of having a child or adopting a child, should see a Virginia attorney
experienced in family law and child custody matters before the child is
born. Since laws vary from state to
state, once again, a do-it-yourself approach could prove disastrous.
Domestic Partnership Agreement
- These agreements which may also be labeled as a family agreement, cohabitation
agreement or partnership agreement, among other titles.
Such an agreement can among other things clarify property ownership
issues, specify arrangements concerning household income and liabilities,
establish the ground rules for the procedure for dissolving the agreement, and
provide the manner in which joint assets acquired while the couple were together
will be divided. Such
an agreement will decrease the likelihood of future disputes by clearly
expressing the couple’s intentions and agreements.
In the case of same-sex couples, I would recommend at a minimum that the
agreement NOT be called a domestic partnership agreement in light of the
Virginia Affirmation of Marriage Act. Likewise,
the more such an agreement looks like a prenuptial agreement or post-nuptial
agreement for married heterosexual couples, the more likely it is that it could
be challenged and potentially ruled invalid under the Virginia Affirmation of
Marriage Act. Pending future
clarification of what contractual and other rights are encompassed within “the
privileges or obligations of marriage” or the possible invalidation of such
Act on Constitutional grounds, same-sex couples should exercise extreme care and
consult with experienced legal counsel before executing this type of agreement. SUMMARY:
By taking the above described steps and putting some
or all of the foregoing documents in place, unmarried couples and same-sex
couples domiciled in Virginia will have done the most currently practicable
under Virginia law to provide for the orderly administration of their estates
and the vesting of assets in their intended recipients.
NOTE: This article contains a
general discussion of estate planning matters and child custody matters which
vary significantly (i) in planning needs and potential tax liability and (ii)
child custody issues depending upon the particular facts and circumstances of
individuals involved and their particular assets. Therefore, it should not be relied upon as a substitute for
individualized legal advice by an experience Virginia attorney addressing
one’s particular situation
Michael B. Hamar, Esquire can be found online at http://gaymarriagelawyers.com/Virginia.htm
F:\DATA\WPDATA\Marketing Materials\Articles\Hamar\Non‑Traditional
Estate Planning.wpd
|