Brady, Nordgren,
Morton &
Malone, PLLC
2301 Sugar Bush Rd, Suite 450
Raleigh, NC 27612
Toll Free: 1-866-573-8832
Phone: 919-782-3500
Fax: 919-573-1430
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ESTATE PLANNING FOR "NON-TRADITIONAL" FAMILIES
By Brady, Nordgren, Morton & Malone, PLLC
Non-Traditional families, face unique estate planning issues that can often be
addressed with the most traditional estate planning tools. A Non-Traditional
family for purposes of this article is defined simply as a two or more person
relationship 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 North Carolina) same gender partners, and domestic
partners as well siblings, parents and adult children or grandparents and
grandchildren. Those who fall within our basic definition in order to be
concerned with the issues addressed in this article must also be in a loving and
economically interdependent relationship that would include a desire to be
economically generous and have a desire to provide economic benefit to the
survivor of the relationship. There are many families that fall within our
definition, including siblings 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. Statistics show that this
planning issue is a significant issue facing our society. The 1970 and 2000
census reflects that married couples made up 71% of all households in 1970 but
decreased to 53% in 2000. Those professionals that refuse to address the issues
faced by this population are denying services to a significant sector of our
population.
The issue presents itself because many state and federal income, gift tax and
estate tax laws provide benefits to the taxpayer spouses. We will focus on
estate and gift tax issues since that is our particular specialty. For example,
U.S. citizen spouses qualify for an unlimited marital deduction for estate and
gift tax purposes on all property and assets they receive as a gift from a
spouse or that they may inherit 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. Since this does not apply to
unmarried couples and other members of non-traditional families, a surviving
partner may have to pay substantial estate or gift taxes on assets they receive
from their partner. While there is a significant exemption, currently set at
$1.0 million, the tax on inheritance above the exempt amount begins at a rate of
37% and goes to a maximum rate of 50%. 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, it is
relatively easy to approach the taxable estate category.
However, the concept of a marital deduction for spouses has not been around
forever and there are a number of older techniques that were used for the spouse
prior to enactment of the marital deduction that can still be applied today for
the benefit of the non-traditional family. These are the most traditional estate
planning tools that we have referred to. These include, life insurance owned by
persons other than the insured, Grantor Retained Interest Trusts (GRITs),
recapitalizations, valuation freezes and split interest purchases and charitable
lead and remainder trusts. These tools are often not considered in a
non-traditional family case, and may be unfamiliar to the novice planner but the
benefit and safety of these techniques follows long established principles and
these techniques are well worth exploring.
Our non-traditional family member in a loving relationship that includes a
desire to be economically generous and to provide economic benefit to the
survivor of the relationship should also be aware of the state law of wills and
inheritance. Most state inheritance laws also require that a surviving spouse
receives at least a minimum share of a deceased spouse's estate. Unmarried
partners are not entitled to anything. Furthermore, a surviving unmarried
partner may be displaced from the joint residence, even if that residence is
owned with the deceased partner. However these undesirable results can be
resolved with a relatively simple will, properly executed that specifies the
decedent's wishes, names an appropriate executor and is properly witnessed by
those who can attest to the competence and independent mind of the decedent at
the time of the execution of the will. It may be advisable that two partners
have separate attorneys to further strengthen the validity of the will. However,
without a will that will withstand a challenge, only the blood relatives of the
deceased are heirs under the law.
Other concerns relate to beneficiary designations on life insurance, retirement
accounts, IRA's and annuities. The transfer of the ownership of these assets at
death is controlled by the beneficiary designation form and not by the will.
Unlike a surviving spouse, the unmarried partner is not entitled to receive any
share of their deceased partner's retirement account unless specifically
designated as the beneficiary. There are also income tax consequences that must
be considered with respect to the retirement account assets and as mentioned
earlier, the insurance proceeds are subject to estate tax if the insured
decedent owned the policy at the time of his or her death. In addition, jointly
held assets may provide survivorship or pay on death provisions that will
automatically vest ownership in the surviving partner outside of the terms of
the decedent's last will and testament.
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. Health care directives and health care powers of attorney are
necessary if individuals want their partners to have the authority to make
medical decisions on their behalf. Financial powers of attorney also allow
unmarried partners to make financial and business decisions on behalf of a
partner. All of these documents are readily available in pre-printed statutory
form on many web sites, and the North Carolina statutory forms are specifically
available at
www.ncestateplanning.com.
The overriding need to be addressed by those who believe this article may apply
to them is to plan ahead for the unexpected, to address concerns, to ask
questions and to be informed. Once couples have made the decisions to plan for
the future, and to address their concerns, they should look for professional
advisors who will respect their candor and will provide compassionate services
to address the needs in a manner that will respectfully honor the life work and
charity of the individual.
R. Daniel Brady and Tim Nordgren practice law in Raleigh and are
certified by the North Carolina State Bar as Specialists in Estate Planning and
Probate Law. They can be reached at 919-781-1311 or by e-mail
dan@bradynordgren.com or
tim@bradynordgren.com.
More Information: Non-Traditional Families |
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