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Estate Planning For Non-Traditional Couples In Virginia

 

By: Michael B. Hamar, Esquire
Payne, Gates, Farthing & Radd, P.C.
999 Waterside Drive, Suite 1515
Norfolk, Virginia 23517
(757) 640 - 1500
E-mail: mhamar@paynegates.com

Michael B. Hamar, Esquire can be found online at http://gaymarriagelawyers.com/Virginia.htm

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

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