September 01, 2015

Post-Windsor LGBT Estate Planning Issues

Joan Burda

General Issues

A growing number of states are recognizing legal protections for LGBT persons. But, the majority of states continue to discriminate against LGBT individuals, couples, and their families. This presents a hurdle for lawyers representing LGBT clients because it is necessary to delve deeper into your clients’ lives for estate-planning purposes than might otherwise be necessary.

The laws that apply to married heterosexual couples may not apply to married same-sex couples. Lesbian and gay clients may need additional planning to help them meet their goals. Recognition of marriage equality will not, by itself, resolve the other dilemmas facing LGBT clients.

Documents valid in the state where they were drafted may not be honored, recognized, or acknowledged in anti-gay locales. Clients need to be aware of potential problems.

For example, do clients have a second home in another state? If so, how is it titled? Does that state law have a transfer on death statute that would allow the property to be passed on outside of probate? Are the clients eligible to convert the property into an estate by the entireties? Is that in their interest?

Clients who travel frequently may require additional documents to formalize their relationship. If they have children and only one of the adults is recognized as a “legal parent,” they may need documents to reflect their rights and obligations concerning the children. Travel also raises issues about advance directives and powers of attorney.

Many within the LGBT community believe the Windsor decision resolved all issues concerning their legal rights. Unfortunately, this is untrue. Windsor dealt with federal recognition of same-sex marriages. That is the beginning but not yet the end.

The ongoing uncertainty concerning legal rights for LGBT persons creates difficulties for our clients. Most clients are unclear about their rights and what they need to do to protect themselves, their families, and their assets.

Most lesbian and gay couples want to protect their relationship and their families and they want to know what to do. Many lesbian and gay couples have or plan to have children and this raises additional issues that are not usually present in heterosexual estate planning. In nonrecognition states, for example, the nonbiological parent may be denied parental rights.

Many LGBT clients are estranged from their families. These clients may be concerned about family interference or challenges and will want to discuss plans to limit future problems—especially for their spouse or partner. Clients are also concerned about guaranteeing that their partner will make decisions for them if they become incompetent. They want to make sure the legal documents are in place and enforceable.

Some estimates state that 80 percent of LGBT people have no estate or life-planning arrangements. It is common to hear a client admit to waiting a long time before starting the process.

In 2001, the Washington State Supreme Court held in Vasquez v. Hawthorne that an inequity results if the state’s intestate succession statute is applied against same-sex couples.10 The court stated, “Equitable claims are not dependent on the ‘legality’ of the relationship between the parties, nor are they limited by the gender or the sexual orientation of the parties.”

Since the court issued that decision, Washington’s intestate succession statute11 has changed to include “state registered domestic partners” at the same level of preference as a spouse. Washington became a marriage equality state in 2012.

Even with that development the Vasquez case shows the lengths a surviving same-sex partner must go to when faced with an intestate situation and a challenge by the decedent’s family.

Some courts are willing to entertain creative resolutions to situations not envisioned by legislatures when drafting intestate succession statutes. But, that is a gamble that clients can avoid by executing a complete estate plan.

Identifying health concerns the client may have is important. Under current law, lesbians and gay men are treated as individuals for Medicaid and Medicare purposes, even if they are married or in a long-term relationship. Long-term care insurance can provide a sense of security for LG individuals and couples.

The federal government has taken steps to alleviate these concerns. The Health and Human Services (HHS) rules concerning hospital visitation was a start.

This situation requires creative solutions and a sound understanding of the legal issues involved.

Other Issues

The differences between “recognition” and “nonrecognition” states will cease to be an issue once marriage equality becomes the rule across the country. Married same-sex couples will be treated the same under state intestacy laws.

Unfortunately, the same will not be true of unmarried same-sex couples. They will continue to be seen as “legal strangers” and a comprehensive estate plan will be essential. For them a state’s intestacy laws will deprive them of sharing in each other’s estates.

These statutes do not provide for a decedent’s same-sex partner. There is no category for “domestic partner,” “lifelong companion,” or similar designation in the intestacy laws. The surviving partner is denied any right to inherit from the decedent’s estate unless the couple has a written and properly executed estate plan.

Lesbian and gay clients who married but never formally terminated the marriage will be surprised to learn they are still married and their spouse has specific legal rights.

Samantha and her former partner, Lesley, provide an example of the issues faced by lesbian and gay couples. The women were together for 15 years but they never married or formalized their relationship.

While they were together, Samantha purchased a home. Several years after buying the house, Samantha became disabled. She found it difficult to make the payments and decided to refinance and put Lesley’s name on the mortgage and the deed. The couple separated two years later. Now, Lesley wants her name off the deed and the mortgage because she wants to buy a house with her new partner. The bank refuses to let Lesley out of the mortgage and Samantha cannot refinance on her own because of her current financial situation.

The mortgage agreement includes a clause that allows a married couple, once divorced, to remove a spouse’s name from the mortgage. Samantha and Lesley wonder if they should get married and then divorce to resolve the mortgage issue.

It is unlikely that marriage will resolve this couple’s dilemma. They might have avoided it had they consulted a lawyer before adding Lesley’s name to the mortgage. Now, the couple’s only alternative may be to sell the house, which means Samantha would lose her home and may be unable to purchase another.

This is an example of why LGBT clients need to understand the legal ramifications of their actions before they take them.

Unmarried Same-Sex Couples Are Legal Strangers

Unmarried lesbian and gay couples are treated as legal strangers. There is no accepted legal description or designation of their relationship and their family is not recognized under state law. Keep this in mind when discussing the clients’ plans.

When preparing an estate plan for LGBT clients, either individuals or couples, keep in mind what laws may not apply. Here is a sampling of issues where state law may treat same-sex couples as legal strangers:

  • Burial and funeral arrangements
  • Mental health decisions
  • Visitation rights in a prison
  • Naming as guardian or conservator
  • Child custody, child support, and visitation
  • Joint adoption
  • Attorney-client privilege
  • Wrongful death
  • Support or alimony
  • Property division when relationship terminates
  • Inheritance
  • State taxes: estate, income, and gift
  • Medicaid

In September 2013, the U.S. Department of Labor issued new pension guidelines that mirror the earlier IRS decision on how to treat same-sex couples. Private pension plans, governed by the Employee Retirement and Income Security Act of 1974 (ERISA),12 must pay qualified joint and survivor annuities to same-sex spouses. ERISA controls employee benefits, including pensions. Private employers must provide the same spousal benefits for same-sex married employees as they do for heterosexual married couples. However, no employer is required to provide any benefits for any spouse.

The June 2014 U.S. Supreme Court decision in Burwell v. Hobby Lobby,13 while not addressing LGBT issues, has opened the door to consideration of religious beliefs and opposition to specific laws. The Court decided that a privately held for-profit company can refuse to provide specific contraceptives based on religious beliefs. Whether the Court will expand that decision to permit a broad religious exemption from antidiscrimination laws is yet to be seen because the situation is evolving. The Court only mentioned “race” as being off the table from claims for a religious exemption.

The full impact and application of the Hobby Lobby decision is still to be understood. Companies are starting to argue that the decision exempts them from providing benefits to or hiring LGBT employees because of the owner’s religious beliefs. The U.S. Department of Education is granting religious-belief-based exemptions from Title IX to church-affiliated colleges and universities.

It is important to remember that Hobby Lobby dealt with federal regulations. It will not provide cover for states or individuals who want to use it to justify discrimination against married same-sex couples. Marriage is a fundamental right under the U.S. Constitution. That is the primary difference.

Children

Children are an integral part of lesbian and gay families. Many, but not all, states recognize second-parent adoption, joint adoption, and joint custody agreements for same-sex couples.

Thirteen states and the District of Columbia allow second-parent adoption.14 Six states restrict second-parent adoption.15 In 31 states, the situation is uncertain.

Many states restrict the parental rights of the nonbiological or non–legally recognized parent. For this reason alone, a joint custody agreement is essential.

Denying a child the benefits of two parents, even if both are of the same sex, runs counter to the professed intentions of protecting the child’s best interests. Children who are denied the legal protection of both parents also experience discrimination on other fronts. This includes being denied financial support, inheritance rights, and Social Security benefits.

A growing body of studies16 shows gay men and lesbians are good parents and their children are well adjusted. Being gay is not sufficient cause to deny someone the opportunity to be a parent.

Estate documents should include language reflecting the parents’ intent to protect the child’s best interests. Since this is often a primary judicial consideration, such evidence can help protect the parental rights.

Referring to the agreement as one for “joint custody” rather than “joint parenting” is preferable. Some state laws use “parent” in a way that precludes anyone who is not biologically or legally related to the child.

Strongly encourage your clients to file for second-parent adoption or joint adoption if their home state allows it. This is true even if the couple is married and lives in a recognition state and the child is recognized as born of the marriage and both spouses are recognized as parents. If the couple moves to or travels through another state, the nonbiological parent may discover she has no legal rights to the child. A court order gives them protection throughout the country under the Full Faith and Credit Clause of the U.S. Constitution.

One school of thought encourages the legally recognized parent and the intended parent to have separate counsel. Heterosexual couples never consider separate counsel and most same-sex couples would balk at the idea. Turning adoption into an adversarial action would not be in anyone’s interest. However, given the challenges that have occurred following adoption in same-sex relationships, it is a topic that should be discussed with the parents.

Married same-sex couples should not rely on the marital presumption to establish parental rights. While the presumption exists for married couples, until the kinks are worked out with the arrival of universal marriage equality, couples may want to ensure their family’s protection by opting for a second-parent adoption.

The marital presumption is an ancient rule that states a husband is presumed to be the father of a child born to a married woman. The presumption can be rebutted, but all states recognize this presumption. The presumption can be viewed from a gender-neutral position by holding that a child born to a married couple is presumed to be a child of the marriage and both adults are recognized as legal parents. The marital presumption will create some interesting scenarios now that marriage equality is on the horizon.

Tax Considerations

Following the Windsor decision, all married same-sex couples are required to file federal tax returns as married. The IRS will determine the validity of a same-sex marriage based on the state of celebration. This means that married same-sex couples living in nonrecognition states are also entitled to file as married.

Married same-sex couples now have identical federal tax rights and liabilities. Some will fall victim to the infamous “marriage penalty.” Others will discover they will receive larger refunds.

Some married same-sex couples might consider filing amended tax returns for previous years during which they were married. They are allowed to go back three years. They may discover they are entitled to additional refunds because of their marital status. Discussing the matter with an accountant or tax professional is worthwhile.

Married same-sex couples are also now entitled to take advantage of the marital deduction.

State taxes are another matter. With the exception of Missouri, all nonrecognition states required married same-sex couples to file as individuals. That situation will also change with universal marriage equality.

Practice Tip

Identify each parent’s relationship to the child. Use the word “parent” when describing the parties. The parties are able to define the terms used in their agreements. Include language to that effect in the document. Include language that the biological or legally recognized parent understands the rights he or she is waiving. And, make sure the biological or legally recognized parent signs the documents. If necessary, have that person contact a lawyer to review the document. Do not use “parent” to describe the type of agreement. Some state statutes define parents to include only adults that are related to the child through biological or legal adoption.

Endnotes

10. 33 P.3d 735 (Wash. 2001).

11. WASH. REV. CODE § 11.04.015 (1).

12. 29 U.S.C. § 1144.

13. 573 U.S. __ (2014).

14. California, Colorado, Connecticut, District of Columbia, Illinois, Indiana, Maine, Massachusetts, Montana, New York, New Jersey, Oregon, Pennsylvania, and Vermont.

15. Kentucky, Nebraska, North Carolina, Ohio, Utah, and Wisconsin; Ohio’s situation is uncertain because some probate courts have allowed second-parent adoptions. However, the adoption statute is silent on the matter. There has been no ruling by the Ohio Supreme Court.

16. E.g., Paige Averett, Archana Hegde & Justin Smith, Lesbian and Gay Parents in Early Childhood Settings: A Systematic Review of the Existing Research Literature, J. EARLY CHILDHOOD RES., Mar. 11, 2015; Loes van Rignvan Gelderen, Henny M.W. Box & Nanette K. Gartrell, Dutch Adolescents from Lesbian-Parent Families: How Do They Compare to Peers with Heterosexual Parents and What Is the Impact of Homophobic Stigmatization?, 40 J. ADOLESCENCE, April 2015; Kate C. Prickett, Alexa Martin-Storey & Robert Crosnoe, A Research Note on Time with Children in Different- and Same-Sex Two-Parent Families, DEMOGRAPHY, published online Apr. 25, 2015.

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Joan Burda

Joan M. Burda is in solo practice in Lakewood, Ohio. She limits her practice to estate planning and working with micropreneurs—very small businesses. She is also an adjunct Professor of Law at Case Western Reserve University School of Law, where she teaches Sexual Orientation and the Law. For the past nine years, she has taught in the Legal Studies Program at Ursuline College. She teaches Civil Procedure, Contracts, and Administrative Law. Ms. Burda is active in the American Bar Association and the National LGBT Bar Association. She is a referral lawyer for the National Center for Lesbian Rights and the Lambda Legal Defense and Education Fund. Ms. Burda speaks to bar associations and private organizations around the country on issues relating to representing LGBT clients. She is a presenter at the annual Lavender Law Conference sponsored by the National LGBT Bar Association and the Family Law Institute that precedes Lavender Law. She lives in Lakewood with her spouse, Betsy.