ESTATE PLANNING FOR "NON-TRADITIONAL" FAMILIES
 

One thing cannot be denied.  Society is changing. In the past 30 years, the number of households comprised of married couples has dropped from 71% to only 53%.  The growing number of “Non-Traditional” families deserve professional assistance in planning for the future, but are too-often ignored by mainstream estate planning professionals. Fortunately, the unique problems faced by Non-Traditional families, can often be solved with the most traditional estate planning tools.

A Non-Traditional family is best defined by what it is not.  It is a relationship between two or more person that is not recognized by both the state and federal governments as a marital relationship. These may include opposite sex couples, (common law marriage is not recognized in New York) same gender partners, and domestic partners as well parents, siblings, and adult children or grandparents and grandchildren. Those within the “non-traditional” definition  must also be in a long-term loving and economically interdependent relationship that would include a desire to provide economic benefit to the survivor of the relationship. Following from this definition, it is clear that more than just a same-sex marriage is involved here.  Such families include brothers and sisters living together and dependent upon their joint incomes and mutual care, a single or a surviving parent with a dependent minor or adult child, as well as unmarried partners.

The problem presents itself because state and federal income, gift tax and estate tax laws provide benefits to the taxpayer’s spouse. Let’s look at estate and gift tax issues.   For example, U.S. citizen spouses qualify for an unlimited marital deduction for estate and gift tax purposes on all property  they receive as a gift from a spouse or that they may receive by will, intestacy or testamentary substitute from a spouse. This means that a surviving spouse does not pay any estate or gift taxes on the property or assets transferred from a spouse regardless of value. This tax-free transferability does not apply to unmarried couples and other members of non-traditional families.  So, a surviving partner may have to pay substantial estate taxes on property they receive on the death of their partner. While there is a significant exemption, currently set at $2.0 million, and next year $3.5 million, the tax on estates above the exempt amount begins at a rate of about 35% (depending on the year) and goes to a maximum rate of 45% . Since all property interests, including investments, retirement accounts and IRAs, real property and life insurance proceeds are included in determining the amount subject to the tax, getting to a taxable estate is easier than most think and an estate will continue to in jeopardy of reduction because of the estate tax bite unless and until the estate tax is repealed in 2010.

The objective in planning a non-traditional family’s estate is twofold: (a) make sure that assets owned by one family member can be passed to the surviving members of the family, and (b) limit the estate tax impact so that as much of the value of the estate survives the transfer process.  To transfer the assets from one family member to the family-survivors, these are the most traditional estate planning tools : Joint tenancy with right of survivorship, life insurance owned by persons other than the insured, and most important, the simple will.  But, to preserve the value of the estate, these and other transfer techniques must be matched with effective estate-tax saving tools, such as the Grantor Retained Annuity Trusts (GRATs), recapitalizations, split interest purchases, charitable lead and remainder trusts,  Irrevocable Life Insurance Trusts (ILIT), and the Family Limited Partnership.

So, the good news is that non-traditional families can find ways to minimize tax burdens and simplify the transfer of assets and property during life or after death.

Finally, another important and easily addressed issue is health care and financial decisions that may be necessary in the event of illness or incompetence. Living Wills and Health Care Proxies are necessary if individuals want their partners to have the authority to make medical decisions on their behalf. Financial powers of attorney and revocable trusts also allow unmarried partners to make financial and business decisions on behalf of a partner.

The key idea for members of the non-traditional family is to plan ahead, to ask questions and to be informed. Once the basic decision to proceed with estate planning is made, they should look for professional advisors who will respect their candor, understand the options available to accomplish their objectives and provide the appropriate services to address their needs.

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Copyright © 2008 STEPHEN C. SILVERBERG, PLLC  All rights reserved.
Last modified: January 15, 2008

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