Gifting Assets to Trusts as LGBT Estate Planning

Joe of Bucks County has a partner to whom he would like to leave a certain amount of money at his death, but if Partner dies before using the assets Joe would like the money to be used for his Niece. A typical Will gives the money directly to Partner subject to a 15% inheritance tax and the money is available to Partner’s creditors and Partner may leave the money to whomever he wishes, ignoring Joe’s wishes. Lets say Partner respects Joe’s wish, dies a resident of Philadelphia, and in his Will gives the remaining assets to Niece; a second 15% Inheritance Tax occurs.

One Answer: Lawyer could form an Irrevocable Trust into which Joe transfers the assets so that at his death the assets are not his…they are trust’s. Partner can have access to this trust during Joe’s lifetime, or only after Joe’s death, whatever Joe wishes. At Joe’s death there is no Pennsylvania Inheritance Tax, a 15% savings. Plus, should Partner later have creditors, the assets are safe. Further, the trust can require the remaining assets be used for Niece. Joe’s wishes are respected and the 15% tax is avoided.

Estate Planning, Inheritance Tax and Life Insurance for LGBT couples

Estate planning for the LGBT couple in Pennsylvania is complicated by the fact that no matter how long the couple may have lived with one another or be committed to one another, for Inheritance Tax purposes they are considered non-relatives. This means that transfers at death from one person to another are taxed at the highest possible rate; 15%.

One exception to this tax is life insurance. The Pennsylvania Inheritance Tax rate on life insurance passing from on LGBT person to another at death is 0%. Every LGBT estate plan should then carefully examine the assets available to the couple and see if the existing life insurance, or life insurance purchased as part of the plan, can reduce the Inheritance Tax due.

For example, if one partner wishes to leave another partner $100,000 in cash, the surviving partner will only receive $85,000 after the 15% inheritance tax. On the other hand, if the partner left $100,000 from a life insurance policy, the surviving partner receives the entire $100,000. With a small amount of planning, the surviving partner in this example ends up with an additional $15,000.

The Federal Estate Tax

Pets: remembering ALL your loved ones

Let's face it, we live in a world in which our dogs and cats (and many other varieties of four-legged and non-legged friends) are a part of our family. This certainly is no less true for LGBT persons. The obvious question that comes to mind then is "What would happen to my beloved Vizsla or Ocicat or mutt Rotty-Pitt-Pinscher mix if I die?"

While we may treat our pets as if they are our children, Pennsylvania does not recognize them as such. However, Pennsylvania does allow a person to include clauses in his or her estate planning documents for the continued care of pets. Pennsylvania law allows people to make formal arrangements for the care of pets through a Will, and also allows for the creation of a trust for the care of pets.

Peter Klenk, Esquire and Jeanna Lam, Esquire explain the different things one should take into consideration when thinking about the future care of pets in their article "Including Your Pets in Your Estate Plan." You may find the piece helpful when thinking about your more-furry members of the family.

Retirement Planning

A study released earlier this year by the American Society on Aging and the MetLife Mature Market Institute reveals that of the 1,200 LGBT baby boomers surveyed, only 21% of them agree that they are "on track" for saving for retirement. And as Todd Henneman writes in his August article for Workforce Management, retirement planning presents a unique set of challenges for LGBT individuals and couples. One notable challenge that is unique to gay and lesbian couples are the inability for surviving partners to receive Social Security survivor benefits, even if they had been in a state-recognized legal relationship, as the federal government only provides such benefits to opposite-sex couples.

One helpful tool that assists with retirement planning and beyond, is the use of an IRA Trust. Since 2006 all IRAs and 401K programs must allow you to name IRA Trusts as beneficiaries. An IRA Trust allows you to pass qualified plan funds for a person’s benefit (e.g. your partner), defer tax recognition of those funds, while adding a level of asset protection to the IRA or 401K funds given to the beneficiary. Such trusts allow LGBT couples to name their partner as beneficiary of their retirement plans upon the owner's death, while giving them the benefit of asset protection AND deferred tax recognition.

For a PDF copy of the American Society on Aging and the MetLife Mature Market Institute survey, click here.

Estate Planning Involving Children

Many LGBT couples have children whom both partners consider to be their own, but whom only one partner is actually the biological and/or legally recognized parent. In this situation, many partners become concerned about who will have the right to take care of their minor children should the legally recognized parent die. In the end, all decisions surrounding custody are based on the best interests of the child, but partners can provide for an alternate guardian in their Will with clearly stated reasons for believing a specific person (including their surviving partner) would be the appropriate guardian for minor children. While not necessarily binding, Courts will take these wishes into consideration when determining guardianship rights.

Moreover, Pennsylvania allows couples to seek what is called a second-parent adoption. This enables a second parent to adopt a child without the first parent losing their legal rights to custody of that child. LGBT couples with children should speak to an attorney about exploring these options.

Intestate Succession in Pennsylvania

In Pennsylvania, when a person dies without a Will, they are said to have died "intestate" and their property will pass according to the laws of intestacy. Pennsylvania law divides the assets and belongings of a person who dies intestate between the surviving spouse and either the deceased's issue (children, grandchildren, etc.) or the deceased's parents. If there is no surviving spouse, assets will pass to surviving issue, parents, or even more distant relatives.

As there are no legally recognized relationships for same-sex couples in Pennsylvania, gay and lesbian surviving partners typically will inherit nothing (other than assets which they had owned jointly with their partner or of which they were a beneficiary) from a partner who dies without any estate planning documents in place. Because the surviving partner of a same-sex relationship cannot be recognized as a spouse in Pennsylvania, all of the deceased partner's probate assets will pass instead to the deceased partner's children or parents, if any are then living. Assets will even pass to more distantly related persons if the partner dies intestate with no surviving issue or parents instead of passing to the surviving partner.

Gay and lesbian persons can avoid leaving their surviving partner with nothing if they have the right estate planning documents in place. Each person's individual situation varies, and as such, members of the LGBT community should speak with an attorney to be fully advised of their options.