Estate Planning

Monday, August 31, 2015

Travel Forecast - Crossing the Line into a No-Comfort Zone

Travel Forecast - Crossing the Line into a No-Comfort Zone

Crossing state lines and international borders is something millions of us do every day. As long as we pack what we need, have our maps, GPS, and our tickets or gas in the car, we are pretty much ready for anything when we hit the road. But for the LGBT community, travel requires careful planning and an extra layer of protection. Both the journey and the destination determine our level of comfort on the trip. Using same-sex marriage equality and other non-discrimination laws as a guide, here are some of the things you should consider when you decide to travel for business or pleasure, or move to a new location:

Read more . . .

Monday, August 17, 2015

Can You Predict the Future? A Good Life Plan Needs Good Estate Planning

Can You Predict the Future? A Good Life Plan Needs Good Estate Planning

Most of us like to bring some order and predictability to our lives by planning ahead. We think about where we are now, and where we would like to be. We figure out how to get there, and how to avoid as many pitfalls along the way as we can. Moving through life, we accumulate things - our possessions, our estate – which are integrated into our lives. As an estate planning attorney, it is my job to help everyone plan for the care of their possessions as they move through life now, and after they die.

Here are a few of the issues that should make you think and do something about estate planning:

Do you have a live-in partner and you aren’t married or registered?

The 2013 U.S. Census Bureau Survey listed around 107,000 California same-sex couples living together. Of these, about 37% were spouses, and the rest were not. In California, community property rules mean that possessions (assets), and what happens to them, are clearly defined for spouses, but not for others. Although you and your partner may have a long-term relationship, your possessions can become a serious issue if you drift apart, become ill, or die. A plan for the care and keeping of your assets is essential to avoid the pitfalls that can upset your lives. If you have a car, bank account, savings or retirement funds, or a home, you have assets to plan for. What will happen to them if something happens to you or your partner?

Do you have children?

Many in the LGBT community have children from a previous or current relationship. If they are minors (under age 18 in California), they are usually under the legal control of one or both parents. But what happens if a parent becomes incapacitated or dies? That is where planning is essential to the child’s welfare. Care of children can’t be transferred to just anyone. A legal guardian will be required, and if there are no other plans in place, the state will appoint one and maintain jurisdiction until the children reach adulthood. It is always possible that the guardian will not be one that the parent would choose. Planning ahead can make the process predictable and greatly reduce the stress on the children.

Do you own a home?

If you own or are buying a house, it is an asset that is part of your estate. What will happen to that house if you become incapacitated or die? It all depends on how the property is titled on the deed. If you own it alone, you can create a Will that gives the house to a partner, a spouse, or another person if you die. The Will must be probated in court, and it may take a year or more to actually transfer the property to the beneficiary. As a better option, you can create a Trust, and transfer the property into the name of the Trust. Your Trust names who will manage the property if you become incapacitated, and who will inherit the property when you die. The Trust does not need to be probated in court.

What if you own the house jointly with a partner, and you aren’t married? There are several serious problems with this strategy. What happens if one of you becomes incapacitated and you need to sell the house? A joint tenant has no right to act alone on any house issues. What happens if one of you has a tax problem, or is in an accident, and a lien is placed on the house? What is the tax bite if your partner dies and you now own the whole house? There are much better ways of holding title to property, and a little planning will avoid lots of pitfalls.

Are you covered for illness or incapacity?

I am not a medical professional, so my concern with these issues is not about your health care plan, but with the plan for care of your possessions when something happens to you. And I say “when” very seriously. As our population ages, a majority of us will, at some point, require assisted living, long-term care or hospice. What happens to your estate when you can no longer manage it? Who will pay your bills, keep up your house or sell it, make sure your finances are in order? If you have a Will, it won’t help at all. A Will is effective only when you die. If you are a single person, or partners who are unmarried or registered, you need to plan very carefully for your own protection.

A Durable Power of Attorney will provide for a personal agent of your choosing to handle financial matters for you. An Advance Health Care Directive will give your instructions to your agent for handling medical and end-of-life issues with the medical professionals who care for you. A Trust will provide the instructions for handling all of your affairs when you are incapacitated, and after you die.

I have never been able to predict the future, so good estate planning is the very best I can do to help you keep your life plans on track.

Wednesday, June 10, 2015

All About Joint Tenancy - Are You and Your Partner at Risk?

Should your home, bank accounts or other property be held in joint tenancy with your partner or other family member? Many people comment to me that they don’t need an estate planning attorney because they own all their property as Joint Tenants with Rights of Survivorship. If they die, the property will automatically belong to the other joint tenant. No need for a Will or a Trust. No need for Probate. No need for an attorney’s services. 

Unfortunately, life is rarely that simple. There are numerous pitfalls in joint tenancy: 

         *   Joint property is exposed to the liabilities of either or both owners. If one

              owner gets a judgment against him or her, the entire property may be taken         

              to satisfy that judgment. If one is a doctor, lawyer or sole proprietor of a business

              in a highly litigious field, or if one is found at fault in an accident, or if one owner

              has a tax lien placed against the property, this may be the worst way to hold title.

          *  Joint owners lose individual control over the property. For example, with real

              property, one owner has no right to act alone in selling, making improvements,

              or refinancing the property.

          *  If one joint owner becomes mentally incapacitated, the property is in legal limbo.

              The owner can no longer convey legal title or sign ownership papers. This can

              prevent property such as a home from being sold or rented. It usually requires

              the healthy owner to go through a lengthy and expensive conservatorship

              process in Probate Court.

          *  When property passes to another owner through joint tenancy, that property

              is left outright, meaning there are no strings attached. The danger is that the

              surviving owner can then leave that asset to his new partner, or anyone else he

             chooses, and the first owner’s share of the estate never makes it to his own

             heirs. The last owner to die wins everything.

         *  When the first owner doesn’t do any estate planning, usually the second owner

             doesn’t either. Although probate may be avoided at the first one’s death, it will

             not be avoided upon the second owner’s death. In the event of simultaneous

             death, all assets held in joint tenancy must go through probate since both owners

             of record are no longer living.

         *  Even if the joint tenants do have Wills or Trusts, the surviving partner will receive

             the deceased joint tenant’s interest in the property, regardless of what that

             owner’s Will or Trust says. Wills and Trusts have no control over jointly owned


          *  Finally, transferring property into joint tenancy may have tax consequences. If

              you place another person on your bank account or a deed as a joint tenant, you

              have just given that person a gift. If the value is less than your annual gift

              exemption of $14,000.00, there may be no problem. If it exceeds that figure, you

              must file a gift tax return with the IRS. You may or may not owe taxes on the gift,

              depending upon your financial situation.


I hope you will give the joint tenancy risks careful consideration before you try to use it as a do-it-yourself estate planning tool. For very small estates such as those having only moderate sums in a bank account and no real property, joint tenancy can work to avoid probate and smooth the transition when a joint owner passes on. For most other estates, there are various planning tools that reduce or eliminate the risks of joint tenancy, and make far more sense.

Careful estate planning and correct property titling are especially important for same-sex couples. For partners who are not married or registered as domestic partners, it is essential to maintain as much individual control over property as possible. Couples can own homes together; have joint and individual bank and investment accounts; and own other property that they share equally, without the pitfalls of joint tenancy.

Many of my clients are same-sex couples who own various assets together. Often, we find that individual Revocable Living Trusts are the best way to maintain their property and allow each partner maximum flexibility and control over their shares. Each one creates the necessary documents to control how assets will be managed if incapacity or death should occur, and this allows each partner to pass his share on to whomever he names in the Trust. Each one has a plan that covers many of the risks in life, and gives partners greater peace of mind about the future.

Wednesday, May 20, 2015

Are You "Judgment Proof" After You Retire?

The bankruptcy rate for Americans over age 55 is soaring. This age group now accounts for over 20% of all bankruptcies filed. Some analysts estimate that for every older person who files a bankruptcy petition, there are two more seniors who should, because of their dire financial straits.

What’s going on?  Retirees used to be seen as financially stable, kicking back on their savings and pensions, mortgages all paid off – enjoying their golden years. But not any more. Here are some of the major reasons why so many of our older generation have hit financial hard times:


          *  People are living longer, making seniors a much larger percentage of the

              population than in generations past.

          *  Retirement funds are inadequate to cover the living expenses of a longer life, and

              income has gone down in recent years – hit by the recession and lack of cost of

              living increases in social security and other pensions.

           * Property taxes and the cost of gas and ordinary consumer goods keep going up.

           * Medical expenses grow rapidly as the population ages. Medicare and other

              health care insurance plans do not begin to cover all costs of medical care for

              older people.

           * Seniors often have to rely on credit cards to pay their routine bills, burying them

              in debt they will never pay off.  This group now has more credit card debt

              than younger generations – debt that was often unthinkable for seniors only

              10 or 20 years ago.

           * Late payments on credit cards and other unsecured debts result in penalties and

              a huge increase in interest rates to over 30% interest in most cases. This makes

              even modest debts spiral rapidly out of control.

But wait…aren’t retirees “judgment proof?” Why should seniors worry about their debts, when, in most cases, creditors can’t touch their pensions or their homes during their lifetimes? If social security or IRA income each month can’t be levied by a creditor, grandma or grandpa can stop stressing, right? And if a creditor puts a lien on your aging mother’s home, what does it matter to her?  She will continue to live there until she dies, and after that, the creditor will get the money from the sale of her house.

“Judgment proof” is not the best way to describe the financial situation of many older Americans. The term is commonly used to mean that creditors can’t collect money from assets that are protected – pension, IRA, or social security income – or the home you live in, while you continue to live there. But a creditor can still file a lawsuit against you, and a court might agree that you owe the money and issue a judgment against you. So technically, virtually no one is “judgment proof.”

A better term is “collection proof” – because, even if you have a judgment against you, the creditor can’t collect it from your exempt assets. So if you have debts you can’t pay after you retire, or even if there is a judgment against you, why should you care? Here are two very important reasons:


       *  Creditors are shameless and relentless. They never give up trying to get money

           out of you. They call, send mail, and use every means to get your attention. To

           an older person who may be in declining health, or barely able to make ends

           meet every month, the constant harassment by creditors takes a heavy      emotional and physical toll.

       *  Creditors will often get judgments against you. You must respond to the Notice

           or Summons you receive from the court. If you do not take action, the court may

           very well authorize a levy or a freeze on your bank account. The county sheriff

           in your county is responsible for carrying out the levy, by ordering your bank to

           freeze your account and/or pay the debt out of your account. Neither the sheriff

          nor the bank may know that all of the funds in your account came from pensions

          or other exempt income. Once a freeze is in place, it can take weeks or months

         to get it reversed. In the meantime, your money is out of your reach.

Creditors can ruin a retiree’s life in ways that are far worse than their effect on younger people. Seniors have few chances to go back to work to pay off debt. There is little or no prospect of their paying off their debts in their lifetime. Credit card debt, in particular, grows rapidly, as retirees pay higher interest on interest over the years. A lien on a senior’s home to pay off that inflated debt after death often means there is little or nothing left to pass on to their children or grandchildren.

For retirees caught in the clutches of creditors, bankruptcy is often a good solution.

It usually wipes out credit card, medical and other unsecured debts, and makes it possible for most people to again manage their everyday living expenses within their income. A huge relief and peace of mind make a fresh start possible for seniors.

Wednesday, April 22, 2015

Money Matters

I handle estate planning for people who have a handful of assets, tons of assets, and everything in between. Other people have serious financial problems, and I help them file bankruptcy, so they can get a fresh start. And some folks are married or registered domestic partners and need me to file for a dissolution of the relationship. Whatever your fortune or misfortune, money and other assets are usually the focus of my work. Here are some notes and suggestions that can help protect what you already have, or regain a solid footing when you need it:

  • Finding Money: You or a family member may have money waiting for you.

Read more . . .

Wednesday, March 25, 2015

When Life Throws You Questions, You Need Answers

A new year is ahead of us, and some of these real-life questions and answers may help you make and keep resolutions that will pay off in the future:


Joanne and Marie are planning to marry in January. They know they need a marriage license from the county clerk. Is any other paperwork required before they can have their wedding ceremony?


No other paperwork is required by the state or county, but there are several important issues that should be reviewed by the couple before they marry. When their status changes from single to married, many of their rights and responsibilities will change, too. Ownership of assets like a home, bank and investment accounts, and beneficiaries of retirement funds, insurance policies and annuities may need to change.
Read more . . .

Wednesday, March 11, 2015

So You Agreed to be a Trustee - Now What?

We help lots of clients with their estate plans, crafting Wills and Trusts and other documents that are designed to protect people and their assets. A revocable living trust is often a good choice because it provides for the smooth transfer of property if the owner becomes incapacitated or dies. It usually avoids handling the estate through a probate court, which is a public process that can be very costly and time-consuming.


For every trust, there must be a trustee  -  the person who is authorized to manage and control all the property in the trust. In a revocable living trust, the initial trustee is usually the person who created the trust (called the grantor or settlor) – the owner of the property transfers everything into the name of the trust, and then controls it as the trustee. A great advantage of a trust over just having a Will is that a successor trustee takes over if that person becomes incapacitated or passes away, and there is no need to go to probate court to have someone appointed. The successor trustee continues to manage the property in whatever way the terms of the trust require.  


For single individuals, or partners who are not married or registered domestic partners, the choice for a successor trustee is usually a relative, partner or friend. These people agree to be the trustee if and when something happens. Although the estate in a trust may not need to be probated, California has strict legal requirements for the performance of trustees and the management of trust property. It is very important that a successor trustee understand the role he or she will play, and the rules that must be followed.


Trusts can range in value from a few thousand to many millions of dollars. As you might expect, a successor trustee’s time and effort will be proportional to the complexity of the estate. But the legal requirements are the same, regardless of the value of the estate.

Most important is the responsibility of the trustee as a fiduciary – managing the assets in the trust for the benefit of others. Heirs and beneficiaries are usually named, and the trust states how the assets of the estate will be divided up among them after all bills are paid and other requirements met. The trustee is responsible for conserving the assets, growing them, if possible, and delivering the assets to the beneficiaries.


Most trustees are ordinary folks who have no experience with managing estates for other people, so they usually retain an attorney to help them administer the trust. Lots of details must be handled over a period of months or years. An estate planning attorney is familiar with all of the duties spelled out in the Trust Administration sections of the California Probate Code, and can assist the trustee with all of those administrative tasks.


Whether the trustee has an attorney or not, it is essential to document everything that happens. Notices of the trust administration and copies of the trust document must be sent to all beneficiaries and heirs. The estate must be valued on the date of death, which may require professional appraisals of personal and real property. Liquid assets such as cash, bank accounts and money market funds must be transferred into a trust account. All valid bills, invoices and other creditor claims must be paid out of this account, along with any expenses for maintaining property or administering the estate.


Account statements must be kept in order and reviewed regularly to track the continuing value of the estate. Investments need to be managed to avoid or minimize any losses. If there is real property, it may need to be sold and the proceeds deposited into the trust account, or be distributed directly to beneficiaries before the trust administration is closed.


Once all debts have been paid, and all assets are in the form required for distribution, there is usually a final accounting. This details everything that happened to estate assets from the first valuation on the date of death to the current date. Unless they waive it in writing, all beneficiaries and heirs are entitled to an accounting at least once a year. If the trust administration continues into additional years, an interim accounting must be sent out at the end of each year, and the final accounting is done just before distributions are made.


If the trustee does not have an attorney, it is strongly recommended that a CPA or other accounting professional be retained to prepare the accounting and handle the filing of required personal and estate tax returns. Failure to follow tax laws can result in serious losses to estate assets and to beneficiaries and heirs. 


Finally, distributions are made according to the terms of the trust. The trustee will write checks on the trust account for cash bequests, and transfer other personal and real property as required. At this point, the trustee may write a check to himself or herself for serving as trustee and administrator of the estate, if the trust terms permit it. The amount will be stated in the trust, or if not, will be determined by local customary fees based on the trustee’s detailed records of hours spent and tasks performed.


Friday, September 26, 2014

Same-Sex Marriage: Down the Primrose Path

It’s been a year since the landmark U.S. Supreme Court decision allowed federal recognition of same-sex marriages. The LGBT community is still rejoicing, and with great energy, is pushing ahead for equal rights in all the other aspects of our lives. 


What have I seen in my practice this year? Many committed same-sex couples getting married - some quietly, some with joyous celebrations, and a few with reckless and thoughtless abandon. Most have lots of questions about what the legal and financial effects of marriage will be. Those who have come to me for answers are eager to “do things right” and protect themselves and their future. Some who rush into marriage without thinking, or without understanding the consequences, may not make it into the future together.


Here are a few of the questions and issues I have worked with recently:


  1. If we marry, does everything we own become community property?

    That depends on how you own the property before you marry, and how you

    agree to acquire new property after you marry. Do you already have joint bank

    and investment accounts? Do you own your house as joint tenants? Do you

    share legal title on your car? It is likely that these will be considered community property once you marry. If you are Registered Domestic Partners, you are already subject to community property rules, and marriage will not change that.


  1. We own a checking account together, and furniture and things in the house, but we want to keep our investments and other property separate after we marry. I want to stay owner of our house. How can we do that?

    The very best way is to create a pre-marital agreement that clearly identifies each person’s separate property and the couple’s shared property. This agreement will also state who will own new property acquired by either or both after marriage. Both partners agree that all property will be covered under the agreement during the marriage. And if there should be a breakup in the future,

    there will be little or nothing to argue about when dividing up their assets and debts. A pre-marital agreement usually must be signed by both parties at least seven days before the date of marriage, so it is not something that can be put off until the last minute.


  2. We just want to be sure that once we are married there won’t be any problems with everyone recognizing that we are now legally responsible for each other.

    You will have your marriage license, if anyone asks. But in most states in the U.S., this will be meaningless. In spite of federal recognition of same-sex marriages, they are only legal in 19 states and the District of Columbia right now. In all the other states, lawsuits are pending, but will not be quickly resolved. If you travel to other countries, most do not recognize marriage equality at all, and some criminalize homosexual behavior of any kind.


    For legal protection, married and unmarried same-sex couples should have all the important documents that spell out the rights of partners and spouses to make personal and medical decisions in case of emergency, incapacity or death.

    At a minimum, there should be an Advance Health Care Directive, and a means to provide this immediately to medical and other professionals in an emergency.


    You may not want to carry the actual documents around with you all the time, so there are some excellent organizations that store them for you electronically, and can provide them 24/7, any day of the year. We provide this service to most of our clients.  You are issued an emergency access card, the size of a credit card, to carry in your pocket or wallet. It provides the information necessary to access your documents right away. This can give partners and spouses a solid legal foundation for their relationship, and peace of mind, no matter where in the world they might be.


  1. My old partner and I were Registered Domestic Partners (RDP) years ago, and then split up. Now I am going to marry my new partner. Will this be a problem?

    Unfortunately, yes. You are not free to marry a different person until your RDP is terminated. In nearly all cases, you are required to file for a dissolution (divorce), just as if you had been married. You must file a petition with the court, and go through the process of serving notice to your old partner, dividing up assets and debts, and agreeing to a settlement of your affairs that the court will find is fair for both of you. A dissolution can take anywhere from 6 to 8 months to a year or two, depending on the amount of cooperation between partners in getting all the paperwork filed, and any disagreement as to how to settle things.




Tuesday, July 1, 2014

Cross Your Fingers and Fill in the Blanks

You’ve heard enough about estate planning from your family and friends. You’re finally convinced that you need to do something to protect yourself, your partner, your property. But, you say, “I’ll be darned if I’ll pay a high-priced attorney to fill out a few forms”. You saw an ad for a complete estate plan package for $995.00  -  just go on-line, down-load all the forms, fill them out and the job’s done. You don’t have to meet with an attorney, think about it, or even leave your home to do all the estate planning you need. 

Or you heard about a “document service” where a paralegal provides you with several forms, you fill them out, and she puts them in a nice, neat file folder for you. Cheap, over and done with.

And guess what? Your local office supply store sells pre-printed legal forms. Pick them up, fill in the blanks, and you’re good to go. Why not take advantage of these or other low-cost shortcuts to peace of mind? 

There are very strong reasons why most people should avoid these methods. Wills and Trusts require careful thought and sound legal advice. Tax planning is an important part of it, too. An estate plan isn’t just an assortment of forms and documents. It is a map for the future that considers all the aspects of your present life, requires decisions about what might happen to you and your family, and is crafted so the plan will continue to evolve as time goes by.

A recent court case illustrates one major hazard of do-it-yourself documents: 

A Florida lady filled out an “E-Z Legal Form” when she made out her Will. She wanted to leave all of her property to her sister, then to her brother, if her sister predeceased her. The sister did die first, and the brother claimed he was entitled to the entire estate. But the pre-printed Will stated that all “listed” items should go to the brother. Not all of the lady’s assets were listed. And the Will did not have a residuary clause (and not even any room on the form to add such a clause) providing for the disposition of property not listed in the document.

Two of the lady’s nieces (children of another brother, already deceased) brought action. After lengthy arguments on both sides, the court decided that the listed items must go to the brother, as the Will provided, but the unlisted assets must pass outside the Will, to the nieces, who were the next heirs in the line of succession.   Although it may have been the lady’s intent that her brother inherit all of her estate, the Will did not say so, and it did not provide any way for him to claim the unlisted items. Concurring Justice Barbara Pariente commented, “While I appreciate that there are many individuals in this state who might have difficulty affording a lawyer, this case does remind me of the old adage ‘penny-wise and pound foolish.’”

Pre-printed forms can’t possibly include all the language needed to cover the wide range of possibilities and probabilities that are part of our everyday lives. There is no single Will, Trust, Power of Attorney or any other pre-printed form or pre-written format that can meet the needs of everyone. How would you know if some essential language is missing, or certain statements can cause problems, or your intent is not truly reflected in the document? How do you know what you don’t know?

Attorneys have studied the laws (and the court cases) and get to know you and all the details of your particular situation. They recognize the hazards and pitfalls of missing or incorrect language, and draft comprehensive documents that fit you like a glove. You are not a John Doe, and your estate plan shouldn’t be, either.

For those of us in the LGBT community, it is even more crucial that our plans cover the  unique family, health and property issues we face because we still lack equality under most state and some federal laws. A properly crafted estate plan gives us the visibility and legal standing that is so essential to protect our families and our assets. Our special needs require special planning.

There should be ads and articles in the newspaper and magazines cautioning people against using pre-printed legal forms. But attorneys often chuckle about this. They don’t plan to run any ads. They get a lot of business from clients who tried the do-it-yourself approach and found the documents unusable when they were needed. Folks who wanted to save a little money bought a lot grief for themselves or their families.

In the court case, the lady may have tried to save herself a few dollars by filling in the blanks, but in the end her estate had huge attorneys’ fees and two years of wasted time. The nieces, of course, were delighted with the E-Z Legal Form she used. They came out over $100,000 ahead. Definitely not the result the lady wanted.

Monday, April 21, 2014

Property Ownership and the Do-It-Yourself Blues

Most married couples and registered domestic partners living in California soon learn about community property. “What’s mine is yours and what’s yours is mine” governs most property ownership here. Pre- or post-marital agreements and state law will provide clear guidance for settling property issues, if the relationships end. 

But what about partners who don’t marry or register? Do California statutes govern their separate and joint property? No. They are two individuals with no recognized legal relationship, and they usually don’t have any legal responsibility for each other or for each other’s property.  

What happens if one of them becomes ill or dies? Or if they just decide to split up? I see

the fall-out from broken relationships every day in my practice. And this is what really worries me. There are far too many unmarried or unregistered couples who do nothing to protect themselves and their assets. Or think there are simple do-it-yourself tools for protecting themselves. Worst of all, some believe that a “palimony” suit can resolve everything, if they split up and disagree about assets.  

Couples often buy a home together, and open joint checking and savings accounts.  They may own cars, buy furniture, make other investments together. Who owns all these things? Both of them? What if one paid a little more of the down payment on their home than the other? Does he or she own a little more of the property? How much more? Is it a gift to the one who paid less?  

One “simple” way to share property is to own it as joint tenants with right of survivorship. Cash accounts, investments, houses and cars can be owned this way.  If one partner dies, the other fully owns the property. No probate. No hassle. It was ours, now it’s mine. But this is a risky way to protect yourself and your property. Here are a few of the very serious pitfalls: 

          If one joint owner has a legal liability, creditor judgment, or is found at fault in an

accident, the entire bank account, house or other property can be taken, even

though the other joint owner is not involved.

           Joint ownership of a house, for example, requires the agreement and signature

of both owners to sell, refinance, rent out, or carry out other transactions. One

owner can act only for his or her share of the property, not the entire property.

Suppose the two owners disagree about selling or managing the property? There

can be deadlock until mediation or some other intervention resolves it.

           If one joint owner becomes mentally incapacitated, the property is in legal limbo.

It might be necessary to go through a lengthy, expensive court process to secure

a conservatorship for the incapacitated partner, so the other can legally manage the entire property.

           If one joint owner dies, even if there is a Will or Trust passing his or

          her ownership share to someone else, the other joint owner automatically

becomes full owner of the property.  Wills and Trusts have no control over

property owned in joint tenancy.

           There may be tax consequences for transferring property into joint tenancy. 

          Adding a joint tenant to your bank account or house title is a gift, subject to your

          annual gift exemption of $14,000.00. If over that amount, you may owe taxes on

          the gift, depending on your financial situation.

Do-it-yourself estate planning rarely works, and simple tools like joint tenancy are very risky. Too often someone is left crying the blues. There are far better ways for couples to manage their assets, and most of them can be easily obtained with a little planning ahead and the good advice of your attorney.

Friday, February 21, 2014

From Lambda Legal: 8 Things Same-Sex Couples Need to Know About Taxes

1) We are married and reside in a state that recognizes our marriage. Do we have to file state income tax returns jointly as married? Do we have to file our federal income tax returns jointly as married?

2) We got married in a jurisdiction where same-sex couples can legally marry, but we reside in a state that does not recognize our marriage. How should we file our state income tax returns? Do we still have to file our federal income tax returns as married?

3) If we are married but live in a state that does not recognize our marriage, do we have to pay federal taxes on medical benefits paid by my employer for my spouse? What about state taxes?

4) We were married before the IRS began to recognize same-sex marriages in 2013. Can we re-file our federal taxes as a married couple for previous years? What is an amended return?

5) If we have a civil union can we file our state or federal taxes as married? Aren’t civil unions supposed to be treated the same as marriage?

6) If we had a civil union in a state that now has marriage equality, are we considered legally married by our state and/or the federal government?

7) Will I pay more federal taxes? What are the major changes to my federal tax filing?

8) Other than income taxes, how are my other taxes impacted?

1) We are married and reside in a state that recognizes our marriage. Do we have to file state income tax returns jointly as married? Do we have to file our federal income tax returns jointly as married?

If you were married in 2013 and continue to live in a state that recognizes your marriage, you should file both your state and federal tax returns as married. However, you can choose whether to file “Married Filing Jointly” or “Married Filing Separately.”

Your filing status is determined on the last day of the year. If you were married on the last day of the year, you will be considered married for the entire year. Likewise, if you were single on the last day of the year (for example, if you got divorced) you will be considered single for the entire year. There are some exceptions to these rules, so check with a tax professional if you have a question about your filing status.

2) We got married in a jurisdiction where same-sex couples can legally marry, but we reside in a state that does not recognize our marriage. How should we file our state income tax returns? Do we still have to file our federal income tax returns as married?

The good news is - the IRS recognizes the legal marriages of same-sex couples, no matter where you now live, so if you were married in the 2013 tax year, you need file your federal income taxes as married. You can choose whether to file “Married Filing Jointly” or “Married Filing Separately.”

The bad news is - if you live in a state that does NOT recognize the marriage of same-sex couples, you will likely need to file your state income tax return as “single,” even though we believe this is unfair and discriminatory. Some people choose to include a note or letter stating that they are married and object to filing as “single.” Such a letter will not affect your state tax status right now, but is a clear statement of your objection to be treating unfairly by the state in which you live.

There are some exceptions where non-recognition states are allowing married same-sex couples to file state taxes as “married” even though they do not generally recognize marriages of same-sex couples for other purposes. And some states have developed special tax procedures or instructions for couples who will be filing as married with the federal government but as single with the state, so you should consult your state department of revenue or a tax professional for more information – and contact Lambda Legal’s Help Desk for more resources.

3) If we are married but live in a state that does not recognize our marriage, do we have to pay federal taxes on medical benefits paid by my employer for my spouse? What about state taxes?

You will probably have to pay state taxes on these benefits if your state does not recognize your marriage, but you will not have to pay federal taxes.

Typically, when an employer provides group health insurance and premium contributions for its employees and their spouses, children and other dependents, the value of those benefits is not taxed by the federal government as “income.” But when all of DOMA was still in effect, the IRS could not recognize same-sex spouses, so this extra “imputed income”was taxed. Married same-sex couples paid more taxes than other married couples. The good news is – now that the core section of DOMA has been struck down, his tax advantage is now available to married same-sex couples for the purposes of federal taxes.

If you were charged federal taxes on this imputed income, you can file a refund claim. For guidance from the IRS on how to claim refunds for or adjust overpayments of certain taxes on benefits provided to same-sex spouses, click here or here. You can also check out the instructions for IRS Form 1040X.

4) We were married before the IRS began to recognize same-sex marriages in 2013. Can we re-file our federal taxes as a married couple for previous years? What is an amended return?

Generally speaking, the IRS allows taxpayers to amend their returns up to three years after they were originally filed. If you were legally married during the 2010, 2011 or 2012 tax years, you may be able to file amended returns as “married filing jointly” or “married filing separately” for those years.

To make a refund claim for income taxes, an individual must complete an amended tax return for each tax year at issue and send it to the IRS with an explanation as to why the original filing was incorrect. The IRS has a precise process and required forms for amended returns. For more information, see the instructions for IRS Form 1040X and GLAD’s Tax Time and Preserving Your Federal Rights. Note that to recover Social Security taxes paid or taxes imputed on health insurance for a spouse, you have to specifically request that such amounts be refunded.

There is some question about the deadline for filing an amended return when a couple could not file a tax return as married but now can. Planning conservatively, you should file any amended return within three years of its original due date, as opposed to the extended due date. For example, for the tax year 2010 (where the return was originally due April 15, 2011), any amended return would have to be filed by April 15, 2014.

You should also consider potential downsides of taking these steps,including an increased risk of audit orthat you may owe more taxes as a married couple and may, therefore, have to pay back taxes for these earlier years. A tax professional can help you determine your best options.

Finally, if your spouse died before DOMA was struck down and you think you paid more in taxes than you should have because of DOMA (e.g., you could not take an inherited IRA as a spouse), you should consult a qualified tax professional for advice.

5) If we have a civil union can we file our state or federal taxes as married? Aren’t civil unions supposed to be treated the same as marriage?

No, marriages and civil unions are two separate legal statuses.

If your state recognizes civil unions, it may grant you all the same state-level rights as a marriage, so you may be able to file state taxes jointly. You should carefully review your state tax instructions for information on how to proceed, or contact a tax professional.

The IRS (and most other federal departments) only recognizes marriages. It does not recognize civil unions, registered domestic partnerships, or similar “marriage-like but not marriage” statuses from foreign countries. Federal law preempts state laws, which means that your state has no control over what the federal government does. Even if your state has a law that says that civil unions must be treated the same as marriage, the federal government will not do so; that law only affects the state (and more local) levels.

If you want to be able to file your federal taxes as married, you will need to get married. However, you should be aware that doing so may affect your eligibility for federal benefits, such as assistance based on need. While we cannot advise you whether or not you should get married, please don’t hesitate to contact our Help Desk or check out our After DOMA fact sheets for additional information.

6) If we had a civil union in a state that now has marriage equality, are we considered legally married by our state and/or the federal government?

That depends on the laws of your state! After achieving marriage equality, some states that offered civil unions automatically converted those civil unions into marriages. In other states, you have to take steps to convert your civil union to a marriage if you want to be married.

These states automatically converted civil unions performed in that state into marriages: Connecticut and New Hampshire. Delaware will also convert all existing civil unions into marriages on July 1, 2014.

These states require some additional step to convert their civil unions to marriages: Vermont, Rhode Island, Delaware (until July 1, 2014), Illinois and Hawaii (in Hawaii, you will need to get married to your partner; no conversion is available).

If you have any questions about converting your civil union to a marriage, please contact our Help Desk

7) Will I pay more federal taxes? What are the major changes to my federal tax filing?

In some instances, joint filing may result in higher taxes because of the so-called “marriage penalty;” there are other instances where joint filing may reduce overall tax exposure and provide opportunities for larger income tax deductions.

As a federally recognized married couple, you must select between a “married filing separately” and “married filing jointly” on your 2013 tax return. By far the most common selection is “married filing jointly.” The more rare “married filing separately” limits deductions and credits you can claim; it is used to separate the tax liabilities of two married people. This is useful if, for example, you are in the process of divorcing and it is not yet final. Generally, joint tax filing helps couples with significantly varying incomes. If, for example, one person is a stay-at-home parent, while the other parent supports the family with her employment, such a couple would “share” the income and the higher earner would effectively be taxed at a lower income level, while the lower earner stays in the same low bracket, for an overall gain for the couple. If, however, the couple is composed of two high-earners, a joint filing may result in the overall income landing them in a higher tax bracket - the so-called “marriage penalty.” You can file jointly with your same-sex spouse even if one of you does not have any income or deductions for that year. If you are concerned about filing jointly or separately with your spouse, we recommend that you discuss your filing situation with a tax planner. Many online tax services and accountants will also give you the opportunity to “run the numbers” and compare the tax consequences of either type of tax filing.

Being treated as married by the federal government impacts other aspects of your overall federal income tax liability. Some of these are complex and it is important to seek out tax advice from a professional with your questions, but here are a few highlights. There are some deductions that joint filing may increase or change, including (1) the standardized deduction; (2) the sale of principal residence exclusion; and (3) if one person is on the other’s health insurance, a joint filing couple will no longer be forced to count that health insurance benefit as taxable income. Tax filers may either take “itemized” deductions or a “standard” deduction, whichever is higher. For an individual “single” filer or one filing as “married filing separately,” the standard deduction is $6,100; however, for joint-filers, the standard deduction rises to $12,200.[1] Here is a sampling of how other itemized deductions add up for joint filing:

  • Exclusion of gain from sale of principal residence: An individual filer may only take $250,000 for this exclusion, while a couple filing jointly may take $500,000.
  • Qualifying Medical and Dental Expenses: If one spouse has a high amount of medical and/or dental expenses in a given tax year, those expenses may be used as a deduction for a joint filing (provided that the expenses exceed a certain percentage of the joint income).
  • Adoption Tax Credit: Qualifying expenses incurred in the course of an adoption, which can be quite costly, may be offset with a tax credit of up to $12,650. This tax credit may be used by a parent who is seeking a second-parent adoption of a child born to their spouse. The dollar amount of the tax credit begins to decrease above an income of $189,710 and disappears entirely for incomes above $229,710.

8) Other than income taxes, how are my other taxes impacted?

With Section 3 of DOMA struck down and the IRS interpreting the ruling broadly according to the “state of celebration,” other taxes beyond your income taxes may be affected. If your spouse died in 2013 and you are entitled to an inheritance from his or her estate, you will no longer be treated as a legal stranger for federal estate tax purposes: you will be allowed to utilize spousal exemptions for some of those assets. At the federal level, estate taxes are not at issue for a transfer to a surviving spouse, where the estate is valued at less than $5.25 million dollars. Similarly, same-sex couples no longer need to worry about gift tax treatment: you can give your same-sex spouse a gift of any amount without incurring any federal gift tax consequences.

[1] All dollar values reflect 2013 tax year amounts. Values in past years (e.g., for amended returns) may be different.

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