Until the time comes when same sex marriages are recognized under state and federal laws in the same way as heterosexual marriages, same sex couples need to take estate planning seriously. Why? Because without an estate plan, in most places same sex couples will be treated in the eyes of the law as complete and utter strangers. As a result, same sex couples without the proper estate planning documents in place will suffer unnecessary heart ache, endless frustration and possible financial ruin during an already difficult time.
Here is what same sex couples must consider in order to protect each other from the harsh realities of the law in the event of legal separation, mental incapacity or death:
- Considering marriage? Then consider a prenuptial agreement. If you and your partner are considering getting married in one of the growing number of jurisdictions that recognize same sex marriages, then do exactly what heterosexual couples should do before getting married: Discuss the need for a prenuptial agreement to protect your respective assets brought into the marriage in the event of a divorce or after death. Already married? Then consider a postnuptial agreement for the same reasons.
- Not getting married? Then consider a cohabitation agreement. A cohabitation agreement is the same as a prenuptial or postnuptial agreement but without the nuptials. With this type of legal document you and your partner can decide in writing how your personal and financial affairs will be handled during the relationship and what will happen if the relationship ends while you're both alive or after one of you dies.
- Get an estate plan. Regardless of your feelings about prenuptial or cohabitation agreements, you and your partner need to sign the following estate planning documents in order to protect each other if one of you becomes incapacitated or after one of you dies: Last Will and Testaments, Revocable Living Trusts (in many cases), Living Wills, Advance Medical Directives, and Durable Powers of Attorney. And once your estate plan is in place, don't stick it in a drawer and forget about it. Every year or every few years pull your estate plan out of the drawer, dust it off, and then review it to make sure that it still does what you want it to do.
- Check your beneficiary designations. If you have life insurance and/or retirement accounts, including IRAs, 401(k)s, 403(b)s and annuities, then make sure that your beneficiary designations are coordinated with your estate planning documents and goals.
- Consider gifts between partners. If you and your partner are not on the same financial ground, then the wealthier partner should consider making gifts to the other partner in order to even out your estates for estate tax purposes. While gifts between partners are currently not eligible for the unlimited marital deduction that applies to gifts between heterosexual couples and will therefore be subject to gift taxes, in many cases using some or all of the wealthier partner's lifetime gift tax exemption may make sense.
- Consider disability insurance and life insurance. Disability insurance and life insurance are sure ways to provide cash to pay bills in the event of one partner's incapacity or death. Life insurance can also be used to offset unequal estates and provide cash to pay estate taxes.