Estate Planning 101 for Same-Sex Couples

Estate Planning, Investing
Estate planning for same-sex couples

Most couples can benefit from estate planning to ensure their assets land in the right hands after they die and their health care wishes are followed. But same-sex couples often have special situations that require extra planning. Here are five steps that pros say same-sex couples can take to get started with estate plans.

1. Know your marital status

The Supreme Court’s 2015 decision in Obergefell v. Hodges legalized same-sex marriage in the United States, but the patchwork of prior state laws has had some unintended consequences for estate planning, says Joan M. Burda, an attorney in Lakewood, Ohio, and author of “Estate Planning for Same-Sex Couples.” Because assets typically flow directly to a spouse upon death, it’s important to be sure past relationships really are history, she notes.

For example, before 2015, some same-sex couples tied the knot in states that recognized their marriages, then moved to states that didn’t recognize those marriages and later broke up. Thinking their nuptials “didn’t count anyway” in the non-legal states, many couples split up but never legally dissolved their marriages, Burda explains. On top of that, some states have automatically converted registered domestic partnerships or civil unions into legal marriages.

The result? “There are a lot of people out there who are married and don’t know it,” Burda says.

2. Go beyond a will

A will is a no-brainer, especially for couples with kids from previous relationships or those who had children before legally marrying, Burda says. Without one, it’s often unclear where assets should go when the last partner dies, she says.

» MORE: What is a will and how can you create one?

But same-sex couples shouldn’t stop there. A power of attorney is also a good idea, says Terri Stallard, an estate attorney at McBrayer, McGinnis, Leslie & Kirkland in Lexington, Kentucky. A power of attorney gives a spouse or someone else the power to act on your behalf in certain situations. There are different kinds of powers of attorney, and the rules and requirements vary by state. A springing power of attorney, for example, allows someone else to handle your financial matters if you become unable to do it on your own, Stallard says.

» MORE: What is a power of attorney?

Setting up a trust can also be a big help, especially if there are concerns about battles over your assets when you die.

“We find that with same-sex couples, families are more apt to contest the will than heterosexual couples because more LGBT people tend to be estranged from their birth families,” Burda says.

“A trust can be a better way of going through things because they can establish the trust during their lifetime,” she adds. Couples can put their assets into the trust, and when one of them dies, there’s less of an opportunity to contest it, because trusts typically don’t go through probate, she notes.

3. Think about medical needs

Same-sex spouses tend to be challenged more often than heterosexual spouses when they need to make medical decisions for partners who are incapacitated or unable to communicate, Burda notes. Same-sex couples especially need to document their wishes, she says.

There are several options, according to Burda and Stallard. Two popular ones include:

  • A health care surrogate, sometimes called a health care proxy, which is essentially a power of attorney just for medical treatment. It allows someone you choose to make medical or spiritual decisions for you, typically if you’re incapacitated. It can also authorize doctors to share your medical information with specific people.
  • A living will, a do-not-resuscitate or other kind of health directive, which documents your preferences about medical treatment when you can’t communicate.

4. Plan for the kids

Typically, when parents die, their assets pass to their children. But to ensure everything ends up with the kids, some same-sex parents may need to make adoption part of their estate planning if they haven’t already, Burda says. This is because it’s more common for only one of the parents to be biologically related to the child.

“Depending on which state they’re living in, they may be able to do a second-parent adoption, or it may be called a step-parent adoption, or in some places they’re calling them a confirmation adoption,” Burda says. “They’re confirming the fact that the children are related to everybody.”

The idea is to ensure that the couple’s assets flow to the children rather than to aunts, uncles or other family members. “If there’s been no legal determination of the child, and [the spouses] don’t have an estate plan, the kid may not get anything,” she warns.

If only one spouse or partner is legally recognized as the parent, adding a trust with certain provisions can at least ensure the non-legal parent remains in contact with the child if someone else becomes the guardian, she adds.

5. Don’t wing it

Same-sex couples should generally avoid do-it-yourself estate planning services online, Burda says. Most of the forms she sees there don’t account for the needs of same-sex couples.

“I don’t have a problem with people who have very, very simple situations going to the online sites to do wills and [such], but LGBT couples need to remember that our situation’s a little bit different and they need to talk to a lawyer who understands what those potential pitfalls are,” she says.

Tina Orem is a staff writer at NerdWallet, a personal finance website. Email: torem@nerdwallet.com.