The Human Rights Campaign and state equality groups, legislators and protestors, and businesses and individuals have struggled to build a country of equality that includes members of the LGBT community. But constructing this home big enough to include all of us has taken a lot of time. And like the Winchester House, every twisting and turning staircase can lead to dead ends, locked doors, and enough construction that it seems the work will never end. Court decisions, legislative edicts, and lobbying at all levels of government have become the foundation of this huge house we are building. What seems to be lost in constructing protests, electing equality architects to public office, and fighting a homophobic zoning board is that each partner can build their own houses of equality with tools already available to them.
That’s right. No (zoning) laws to be passed. No court cases (against the homeowners association) to be litigated. No constitutions (or permits) to be altered. The tools available right now can help partners build their own shelters of equality… immediately.
In the legal world as well as construction, we need to use the right tool for the right job, and the blueprint should be based on the goals of the client. Unfortunately, in the fifteen years I have been working with domestic partners I have seen too many attorneys use the wrong tools for the job and construct something that may fall apart far too easily. Just as bad, cookie-cutter “huts” may leave many partners with minimal protection and not reflect their individual floor plans at all. But before we begin discussing the tools, it is probably best to discuss the rights most partners wish to build.
Most of my partner clients have expressed three main wishes regarding their relationships with each other and the world. First, most partner couples wish to combine their assets as one family unit. Once partners have decided to commit themselves to each other, they generally wish to structure their assets so “what’s yours is mine, and what’s mine is yours.” Next, most partners wish to empower each other so that in the event of a crisis their partner is in control of healthcare decisions and finances.
Finally, most partners wish for automatic, 100% inheritance for their partner if they should pass on. And fortunately, all of these rights are available to domestic partners if the right tools are used to build a plan the right way.
The main legal tools available right now are:
- The Partner AB-SECURE joint revocable living trust
- A Domestic Partnership Property Agreement
- Powers of Attorney
Please keep in mind that these are only the main tools in the toolbox, and there are many others that, when used properly, can fill in some of the rights partners seek. In order to find out the best tools for your situation, please consult an attorney proficient in using these three legal tools and chances are they will know about the rest.
The Partner AB-SECURE Trust
This joint revocable living trust was specifically designed for domestic partners and handily meets the first goal of bringing assets together as one family unit. By building this joint revocable living trust and making both partners trustees of the trust, both partners have full authority to conduct transactions with any assets in the trust. No matter which partner puts an asset into the trust, both will be able to control it. Here’s how it generally works. Both partners establish the trust and are known as the “trustors” or people setting up the trust. Both partners are the “trustee” or the people who control the trust after it is set up. And finally, both partners are the first level beneficiaries of the trust, so they are administering this trust for their own benefit.
In terms of control, setting up the trust and retitling bank accounts, investment accounts, real estate, and even personal possessions and clothing in the name of the trust gives both partners control. If one partner becomes sick and cannot act as trustee, the other partner maintains that 100% control over the trust, all its assets, and can manage the trust finances for them both. If one partner passes on, the other partner is still in charge of the trust and can automatically inherit everything from the trust (if that is both partner’s wishes). And, most importantly, all of this happens without any court or government agency having to oversee the asset distribution which is exactly what happens with a Last Will and Testament.
While the Partner AB-SECURE Trust vey squarely addresses the goal of bringing assets together as one family unit, there is a BIG stumbling block which must be addressed—the gift tax. The federal gift tax was enacted as part of estate tax legislation to make sure that people with taxable estates could not simply give away their estates minutes, or even years, before their death and bypass estate taxes. And so no one can simply transfer assets to anyone (other than a federally recognized spouse) without triggering the gift tax. There is an amount that is exempt annually from the gift tax, and for 2011 that is $13,000. So when one partner’s individual assets are transferred into a joint trust, it is as if the partner transferred half to the partner, and if half of ALL the partner’s assets exceed $13,000, then federal gift tax forms have to be filed, and if the amount is large enough, taxes paid.
Whoa! Stop construction right now! Isn’t this a fatal landmine right where we’re laying the foundation? Well, it would be if it were not for the Domestic Partnership Property Agreement. But before getting to that document, it is important to note that many partners do not seek the help of attorneys skilled in this area and instead listen to bankers, real estate attorneys, and other professionals and they instead start putting their partner’s name on their accounts, real estate, and other assets as joint with a right of survivorship. Unfortunately, this also triggers the federal gift tax, but most people simply fail to report these gifts. It may be years down the road, maybe even in an audit of personal or estate taxes, when the IRS would catch up. Then you hear their two favorite words… interest and penalties.
You wouldn’t start building a house based on blueprints sketched out on a napkin by a florist, or landscaper, or another professional tangentially related to building a house. So please don’t start building a partner protection life and estate plan without first speaking to an attorney well-versed in domestic partner life and estate planning. (For more information on finding an attorney, please read my book Estate Planning for Domestic Partners: The Legal Secrets You Need to Know To Protect Your Partner and Your Future, available at www.livingtrustlawfirm.com/media).
So while there may be a few elaborate and expensive methods of propping up the joint property tents to avoid the gift tax like promissory notes and loan agreements. But there is a way to design the right plan to both bring assets together as one family unit in a Partner AB-SECURE Trust and avoid the gift tax. And that is by using coordinated Domestic Partnership Property Agreement to augment the joint trust foundation.
The Domestic Partnership Property Agreement
Depending on the experience and skill of the attorneys you speak to, they may offer domestic partnership agreements as part of their practice. However, this is like the attorney saying they offer contracts; there are lots of choices of what to put into a contract like this depending on the goals of the partners and the overall plan created by the attorney.
In general, a domestic partnership property agreement that works with the Partner AB-SECURE Trust should furnish the following:
- Listing the separate property of each partner;
- Listing the true, 50-50 assets owned by both partners;
- Describe that although the assets are separately listed that both partners can access all accounts as Trustees;
- That their combination of assets is for pragmatic, economic purposes; and
- That in the event of a breakup, each partner takes their own assets and then split the joint assets down the middle.
By listing all of the separate assets of each partner while simultaneously having all such assets titled as trust property means that all of the assets are brought together under one roof as a single family unit, but at the same time there are no gift tax consequences to putting the assets into a joint trust. Certainly there are other moving parts that can be written into a domestic partnership property agreement, but these are the most critical to make the Partner AB-SECURE Trust work appropriately. Some other terms that are typically not recommended for this kind of agreement are break-up provisions that give one partner more assets than described above, or parenting, custody, or other non-economic provisions. An uneven distribution going out of the trust triggers gift taxes just as much as assets going in (without the right agreement). The other provisions related to children and custody are good to have depending on the relationship, but they are more appropriate for specific agreements that relate only to those matters. Again, use the right tool for the right job—there’s no need to make a hammer that also acts as a screwdriver.
Powers of Attorney
By far, stories of one partner being denied access a sick partner’s bank accounts, stocks, and even the hospital room are as abundant as tract houses. Partners have even been thrown out of their own homes by the family because it was deeded solely in the sick partner’s name. Most of the financial problems fall apart with the Partner AB-SECURE Trust since assets titled in the name of the trust are already and immediately under the well partner’s control. But what about assets outside of the trust? What about medical decisions? That’s where power of attorney documents come in.
A financial power of attorney is a tool designed to handle all legal, government, and financial issues related to assets titled in the individual’s name. Since assets titled in the name of the trust are controlled by the trust, only assets left outside the trust fall under the financial power of attorney. These assets are often limited to IRAs, 401ks, tax-deferred annuities, and other retirement accounts, because putting those assets into a trust would cause them to pay out and be taxed all at once. So if a sick partner’s retirement accounts need to be accessed, the financial power of attorney would be the right tool for the job.
The power to handle legal and government affairs should not be overlooked. Applying for government benefits, dealing with creditors, and even working with a health insurance company may require a financial power of attorney before they will deal with the well partner. It also may handle some relatively low-priority items as well, such as changing or cancelling cable TV service, switching cell phone plans, and even challenging that property tax bill with the county. Even with the powerful Partner AB-SECURE Trust in the toolbox, the additional Financial Power of Attorney can be a powerful tool taking care of problems needing a small nip and tuck, or crush them with the force of a sledgehammer depending on the situation.
For the record, the financial power of attorney is a general term we use; there are attorneys who use “durable general power of attorney,” “springing power of attorney,” “limited springing power of attorney,” “durable limited power of attorney,” “jumping poodle power of attorney,” or “dancing turtle power of attorney,” but the powers are all the same. The different terms refer to when the power of attorney is effective and how broad the power is. And, yes, we made the last two up. It’s like insisting that people not refer to the row of three residential buildings on a block as “houses” but instead forcing them use the terms “split-level ranch,” “New England colonial,” and “gablefront.” In the end, they are all houses.
The healthcare power of attorney may become even more important than the financial power of attorney in a crisis, and this document is just as important as having a first aid kit on a construction site. You never know what may happen, and there is no need to take chances. The healthcare power of attorney empowers partners to make medical decisions for each other if they can not make the decisions themselves. It only takes a quick look on the web to find stories of partners who had been together for 10, 15, or 30 years being turned away from the hospital and long-estranged blood relatives coming in and taking over all medical decisions.
While this is tragic, it’s like spending years building a house together only to have the government tear it down because you didn’t have a building permit. The Healthcare Power of Attorney is considered one of the simpler documents partners can execute, but it does a lot in a crisis. Some of the powers a well-drafted healthcare power of attorney can provide partners are:
- Determining surgery and courses of treatment, and the hiring and firing of healthcare professionals,
- Authorizing or declining medications, or using brand name or generic drugs,
- Accessing medical and billing information, and
- Authorizing or declining access to the partner in the hospital room
While broad, there are some hospitals in the past that have declined to honor healthcare powers of attorney for partners on religious grounds, and they have gotten away with it because they were private hospitals. All of that changed last year when the Obama Administration issued new regulations stating that private hospitals that decline to honor legally-executed Healthcare Powers of Attorney would lose all reimbursement for Medicare and Medicaid, which for some medical facilities like nursing homes may be more than three-quarters of their funding. Yes, private healthcare facilities can still technically decline to honor healthcare powers of attorney, but they probably won’t be around for long once their funding is taken away.
Start Building Now
There are many more tools in the partner equality toolbox, but these are the main ones every domestic partner couple should look into if they want to provide their partnership with the maximum protection possible. While constructing a nationwide fortress of equality may take more time than it did to build an ancient pyramid in Egypt, it does not mean that partners have to wait and hope for shelter of their own to appear. They have the tools available to build their own equality right now, and there are life and estate planning architects standing by to help them form their own dream house.