Where There's a Will

Staff Writer
Columbus CEO

When it comes to estate planning, married couples have it relatively easy. Sure, they get penalized every year when it comes time to pay Uncle Sam. But in return, if a spouse dies-even without a will-the surviving spouse generally doesn't have to tangle with estate taxes, finances or custody issues.

Domestic partners aren't so lucky.

Marnie Lambert and her partner have been very purposeful in legally documenting their wishes regarding asset distribution, financial issues and health-care decisions.

"Many of the laws that automatically apply to married couples don't apply to us. We have to specifically plan for many things that married couples do not. Otherwise the risks are just too great. Without the legal paperwork, there's no deference to my partner or what we have decided together," says Lambert, a Hilliard resident.

For domestic partners-whether they're a same-sex couple like Lambert and her partner or a man and woman who choose not to marry-estate planning is crucial. An estate plan outlines directives regarding financial concerns, asset ownership and distribution, and health-care decisions. Domestic partners need the same pertinent documents as married couples: wills, revocable living trusts, durable powers of attorney, living wills and durable health-care powers of attorney. Without those, a partner has no legal rights.

"Marriage provides a set of assumptions. If you're married, the spouse is the go-to person. The law directs your assets to your legal spouse if you don't do any estate planning. Nontraditional couples have no presumed set of assumptions. They have no choice but to plan if they want their wishes followed," says attorney Michael Bonasera, an associate at Dinsmore & Shohl who assisted Lambert and her partner with their estate planning.

"Domestic partners don't have the same legal safety net to fall back on that married couples do. If nothing is in place, Ohio's law of descent and distribution allows assets to flow to the surviving spouse. That's not at all true for a nontraditional couple. They can't count on their assets being distributed to their partner," says attorney Bob Barnett, managing partner at Carlile Patchen & Murphy.

Estate planning gives domestic partners control over decisions regarding their assets, finances, child custody and health care. Some tools also protect privacy by avoiding lengthy court proceedings and help to fend off family challenges to personal decisions. Central Ohio attorneys say a few key documents make all the difference in ensuring domestic partners' wishes can be carried out.

Cohabitation Agreement

In 2004, Ohio voters approved the controversial Defense of Marriage Act (DOMA), which amended the state constitution to ban same-sex marriages or civil unions.

"Ohio's law is what's known as a Super-DOMA. It defines marriage as being only between a man and a woman and that Ohio will not recognize any relationship that seeks to approximate the design and qualities of a marriage," Bonasera says. Ohio is among 19 states that has such a Super-DOMA.

Without legal recognition of their relationship, domestic partners often are unhappily surprised to learn that they play by vastly different rules than married couples. The Human Rights Campaign (HRC) of Washington, D.C., a civil rights organization working toward lesbian, gay, bisexual and transgender equality, reports that there are 1,048 federal benefits that are triggered by a state-recognized marriage that same-sex couples don't enjoy.

"For example, Ohio obviously cannot recognize a divorce or dissolution, since same-sex marriage is not recognized. Since there's no access to the courts for a dissolution or divorce, estate planning documents helps determine what assets go where," says Timothy Mahoney, HRC's estate planning director.

Planning for the demise of a domestic partnership isn't very romantic, but it is practical. Cohabitation or joint living agreements state who owns what property individually and what the couple owns jointly. The document spells out the proportion of expenses each partner is contributing, as well as the ownership proportion of the assets.

"Straight or gay, couples who cannot marry must come up with their own written contractual arrangements outlining their relationship and the property in it. These arrangements form a legal foundation that helps prevent conflict later on," Mahoney says.

Probate Process

At death, a will names an executor and directs how the deceased's property is to be distributed. A county probate court oversees estate administration proceedings and ensures the validity of a will, notifies and confirms all legal claimants to property and resolves ownership disputes.

"In Ohio, the only person to have legal claim to your assets is your surviving spouse. Your blood family has zero claim against any of your property. The fact you may choose not to leave anything to them doesn't give them a claim. You're free to determine who inherits your property and who doesn't," Barnett says.

The will also should name guardians for any minor children. Be aware that domestic partnership doesn't trump DNA. "If a partner has a former legal spouse and that spouse is living, he or she still has custodial rights to their natural children. Your will can't designate your partner to have guardianship instead of the biological parent. You can keep money from the ex-spouse, though, and give your partner control over it for the benefit of the child," Bonasera says. "At that natural parent's death, it's possible to name the partner as a guardian for the child."

Lambert says the two children she has with her partner, and her partner's child from a previous marriage, provided additional motivation to formalize their estate plans. "Our friends with children seem to be on this. Our friends without kids seem to be winging it more," she says.

In the absence of a will, the court makes final estate decisions and distributes the deceased's property according to Ohio law. "Without proper estate planning documents, the estate goes to probate court and the partner has no legal standing. Biological family members take legal priority according to the law of descent and distribution," says Thomas Taneff, principal of the Law Office of Thomas Taneff.

The law prioritizes blood relatives starting with children, parents and siblings, and then others. "When your assets go through probate, all of the next of kin are notified and get to put in their two cents," says William Root, managing partner at Resch and Root.

That opens the door for the parent who disowned a gay child to fight for control not only of grandchildren, but also the deceased's finances-potentially leaving a longtime partner literally out in the cold.

"Every state will tell you what will happen if you don't have directives, whether you're gay or straight. Your backup plan is the state law, and it doesn't include partners or friends. It's important to understand the implications of that," Mahoney says.

The probate process increases the chances of a challenge, and all assets in probate are fair game. "Estate planning documents can minimize the risks of a successful challenge from family members who may not approve of the relationship," Taneff says.

Revocable Living Trusts

A revocable living trust allows assets to pass to designated heirs without going through probate court. The grantor, or creator, appoints a trustee and funds the trust with assets during his or her lifetime. The partner can be named co-trustee or successor trustee. If necessary, the will can redirect any assets not already in the trust to it at death.

"A living trust is very useful for nontraditional couples for delineating ownership of property and determining its distribution at death," Barnett says. "By protecting the property from probate, it also keeps your wishes from being challenged by blood relatives."

"Partners can specifically name a successor trustee upon their death. Usually it's the partner, who then assumes management of the trust," Taneff says. "Living trusts also are attractive because their terms are private. The terms of a will become public record once it's filed in probate court."

Two assets that usually aren't transferred into a living trust are life insurance policies and retirement plans. "In each case, you can designate a specific beneficiary, such as the partner or the trust," Root says.

Without a designated beneficiary, most insurance policies default to the estate to be distributed according to state law. The Pension Protection Act of 2006 allows a nonspouse beneficiary of a retirement plan to roll the inherited proceeds into an individual retirement account (IRA) to avoid taxation. Prior to the law, domestic partners took an immediate hit on the inheritance, while spouses could roll the inherited savings into an IRA without tax penalty.

"That change was huge for our community," Mahoney says.

POA, Bank Accounts and Estate Taxes

A durable power of attorney allows people to designate an individual or institution to make business, financial and legal decisions on their behalf should they become incapable of managing their own affairs. Domestic partners often choose each other, but may opt for an independent third party such as a lawyer.

Access to cash during a health crisis or at death can be hampered if bank accounts are not titled properly. "If your bank account names the partner as a designated beneficiary or it's titled as a joint tenant account, the partner can access the funds at your death without any difficulty. Those are nonprobate transfers of money. The partner gets the assets as designated, and family members can't sue or challenge it," Taneff says.

Be aware, though, that joint tenant accounts provide access prior to death as well. "If the relationship turns sour, the partner can legally drain the account," Taneff says.

Estate taxes are another potential complication. While a legislative quirk eliminated the federal estate tax for 2010, there was much wrangling in early December about how to reinstate it. Without action, come Jan. 1, assets exceeding $1 million ($2 million for married couples) would be subject to a tax rate of 55 percent. The estate tax that expired Dec. 31, 2009 set forth a 45 percent tax rate and $3.5 million individual exemption ($7 million for married couples).

"Husbands and wives enjoy an unlimited marital deduction. If I leave everything to my spouse, it's free of federal estate tax until the surviving spouse dies. If I leave assets to anyone else, they could be taxed at 55 percent at the federal level. Nontraditional couples easily could find themselves in a taxable situation," Root says. "With a husband and wife, you're not concerned about estate taxes until the death of the second spouse. With domestic partners, though, it's an issue at the first death."

Health-care and Funeral Decisions

Estate planning attorneys encourage clients to have both a durable health-care power of attorney and a living will, because they address different aspects of care.

A living will contains specific directives regarding the use of life-sustaining medical treatment in the event a person is unconscious and there's no reasonable chance of recovery. It takes effect when you're unable to communicate your wishes yourself and gives physicians authority to follow your instructions. No one can override it, as it can only be changed by the person that signed it.

A durable health-care power of attorney covers a broader range of situations. It allows the creator to name another person to make health-care decisions on his or her behalf, regardless of whether the patient's condition is terminal or he or she is permanently incapacitated.

"With a durable health-care power of attorney, you can name anyone to be your agent in the applicable health-care situations. Blood relatives have no statutory priority. The only thing that can trump it is the appointment of a guardian by a court. A parent might apply to be a guardian of an adult child, but it's up to the court to decide," Barnett says. "When a person has legally named someone to make health-care decisions on their behalf through a health-care power of attorney, it has great weight with the court."

A parent's obligation of care ends when a child reaches age 18. Once married, spouses assume the obligation for each other. Domestic partners need to legally name each other in a health-care power of attorney to have a role in the decision making.

"No one bats an eye when a husband or wife makes decisions for each other in the hospital. Participating in health-care decisions for your partner isn't that easy for a same-sex couple. There are barriers without the legal documentation," Mahoney says.

When it comes to funerals and burial issues, domestic partners can use Ohio's Right of Disposition bill to avoid disagreements with the deceased partner's family members. "Ohio law allows a person to name someone as their agent to make decisions about how to handle their remains either through burial or cremation, if a religious service will be held and, if so, what type of memorial it will be," Barnett says.

Estate planning can easily slip through the cracks of everyday life-regardless of what type of relationship a committed couple has. "When we talk with our friends about it, they say they never thought they wouldn't be able to control X, Y or Z. I guess that's not really a gay or straight issue, though. No one really wants to talk about death and estate planning," Lambert says.

Mahoney says such paperwork is a valuable investment. "Get it done now. It can save you so much heartache in the future. Not only does it protect your assets after incapacitation or death, but the plan protects the relationship and choices made on your behalf. Things can wrong even with estate planning, but having the documents goes a long way to having your wishes respected," he advises.

Lisa Hooker is a freelance writer.

Reprinted from the January 2011 issue of Columbus C.E.O. Copyright © Columbus C.E.O.