Unique Issues and Tax Considerations of Estate Planning for LGBTQ Couples

Creating a comprehensive estate plan for LGBTQ couples can add unique dynamics to an already complex process. While the U.S. Supreme Court ruling in 2015 greatly improved the equality and legal recognition for marriage of same-sex couples, there are still many issues that can occur without professional assistance and proper planning.

Will and Trust Assignment

Whether living trust or a last will and testament, each document is the central piece of any estate plan. It outlines your wishes and designates key representatives that will oversee you and your spouse's or partner’s estate upon death of either person. As straightforward as it sounds, creating a will or trust assignment can easily turn into a complex situation.

For example, suppose a spouse or partner was previously married. In that case, it may be necessary to review and adjust previous estate planning documents, powers of attorney and beneficiaries. When an experienced attorney is involved in this process, they can manage the intricate nuances of the previous marriage and explain the terms of the new estate plan to ensure proper execution of your current preferences.

Planning for Care of Children

Personal tragedy or medical issues can strike at any time. For this reason, planning the guardianship, care and financial support for minor and young adult children at the time of your death or incapacitation should never be overlooked or postponed. Nominating a guardian and appointing a trustworthy adult to manage your assets and family care is a critical responsibility.

Considerations for Non-biological Children

If you and your partner or spouse adopt or conceive with the help of a surrogate, it is essential to include additional provisions in your estate plan that designate specific guardians. In some cases, a release signed by the surrogate or biological parent may be recommended to avoid a potential custody battle in your absence further down the road.

Attempted Intervention by Family Members

Often, not all members of the family will agree on the terms of an estate plan. To avoid confusion, arguments and potential legal battles, the preferred distribution of assets and wealth must be clearly documented. In many cases, a trust is formed to avoid these issues.

Avoiding Probate and Intestate Succession

Probate, is a costly and avoidable expense. Probate occurs when a person passes away with or without a Will that designates their wishes, assets and distribution of financial holdings. Note that having a Will does not avoid probate. Rather having a Will is the most effective way for your estate to need probate. In most cases it is wise to put a process in place that avoids probate. This is why we recommend trusts over Wills in Illinois.

Dying intestate (without a Will) creates a laundry list of issues for your spouse/parnter and surviving family members, and it is often a long process. This is especially true for LGBTQ couples. Due to the intestate successions laws that still rely on the archaic legal relationships of marriage, probate which,can leave the surviving spouse/partner without rights to property or finances even if some of those may be shared. To avoid this process entirely, key documents are required and are easy to create in advance:

  1. Living Trust

  2. Legal Transfer of Accounts, Deeds and Assets

  3. Joint Ownership of Property, Financial Investments, and Assets of Value

  4. Beneficiary Designations

Addressing Small Estates for the LGBTQ Community

The goal of every estate planning tool is to transfer rights, power, or decision-making authority during some of life's most challenging times. Regardless of net worth - whether they have $10,000 or $10 million in the bank - LGBTQ couples need to have the proper, legally recognized documents in place, and these documents should specifically address the rules of the state in which you legally reside. In Illinois a small estate is an estate that has a gross value under $100,000. The unique application of non-married LGBTQ couples will require formal estate planning documents to insure proper transfer of accounts, even if the estate is under $100,000.00 and is considered a small estate. Laws governing the probate process change, so we encourage couples to work with a licensed attorney in their state and to regularly revise all estate planning documents.

Understanding Estate Taxes

When the assets of an estate are distributed, an estate tax may be charged to each beneficiary. Fortunately, the Federal Estate Tax Exemption is high, with a threshold of $5.45 million per person. In Illinois the Estate Tax Exemption is $4 million. This means that, as long as you are legally married, beneficiaries are exempt from federal estate tax if the estate is valued at less than $5.45 million or 4 million at the state level. As noted above for Illinois, many states still enforce their own estate tax rates, though the state rate is often less than the federal government rate. If you reside in a state that applies an estate tax, consult your attorney. Any experienced estate planning attorney should know the local rules for estate tax; if they don't, that is a red flag!

Consulting a Tax Professional

For LGBTQ couples with significant net worth, it is worth speaking with a tax professional, preferably recommended by an estate planning attorney. Commonly, estate planning attorneys coordinate with tax professionals to set up trusts as part of a tax strategy.

Making Final Arrangements

This portion of the estate plan is typically the hardest. No one wants to think about the day their spouse or partner passes away. However, having these difficult discussions and making the right decisions in advance will save your loved one hours of headache and grief during one of life's most difficult times.

Final arrangements address your wishes for:

  • Cremation

  • Burial and embalming

  • Choice of caskets, urns, burial markers, or headstones

  • Payments for final arrangements and ceremonial services

It may also save them money. In many cases, there are quite a bit of time and cost savings also involved. Rush fees and difficulty finding facilities or a place to bury loved ones can occur at the last minute.

In Conclusion

Estate planning is something that should be of highest priority. Doing the work now is far less costly and complex than rushing the process in the final hours. It also helps your and your spouse avoid probate expenses and undue stress.

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