Estate Planning Can Be Challenging For Non-Traditional Clients
By
Las Vegas
When developing estate plans for clients, planners face a constantly changing and increasingly complex tax environment. But when these clients do not fit into the "traditional" family model, there are many more issues that need to be addressed, all of which increase the complexity of any plan.
The "non-traditional" family model includes unmarried individuals who are involved in "domestic partnerships" with another individual–both same sex as well as opposite sex couples. In addition, the non-traditional families include those couples who may be working on their second marriage–especially those with children from a prior spouse. Finally, a third group of clients that fits into this mold are those individuals with a spouse who is not a citizen of the United States.
For these individuals, estate planning can take on a very different picture from what is commonly found in "traditional" family units.
These were some of the areas that were addressed in a session at the LIMRA Advanced Sales Forum meeting here.
Non-traditional estate planning clients have many of the same objectives as traditional clients, according to Jeffrey Hollander, senior counsel, business and estate planning, MetLife. Estate planning for most people, regardless of their situation, usually includes the desire to build an estate, a plan for the proper distribution of that estate at their death, and the desire to minimize the transfer tax and other taxes that may be applicable at that time.
For domestic partners "theres a lot of special planning that needs to be done," Hollander said. One of the issues that comes up when planning for two individuals who are not married–but have both a financial and emotional dependency–is the fact that most laws are written to favor the traditional family unit, he said, adding that this applies to both state and federal laws.
Domestic partners are not protected under many of the laws married couples are, he said. This being the case, Hollander suggested that these clients engage in a formalized domestic partnership agreement. This is an agreement that defines how the assets of the couple would be divided in the event their relationship terminates–similar to what happens when a married couple gets a divorce.
Another issue that needs to be addressed for non-married couples is the state intestacy law of their home state, said Hollander. "For people who dont do planning, the laws are set up to do what youd probably do otherwise," he explained. But for domestic partners who are not legally married, this may not be their desired outcome. For these individuals at death, their assets would likely go to their family–not to their partner.
An issue that non-married couples need to address in their planning also includes the fact that there is no unlimited marital deduction available to them, Hollander continues. Many people mistakenly believe that the marital deduction will apply to a domestic partnership that was formed in the state of Vermont, the only state that currently recognizes a civil union between domestic partners. But Hollander noted that this is not the case, since the unlimited marital deduction is a federal benefit to married couples, domestic partners will not benefit by it, regardless of what state they live in.
Gift taxes may also be an issue for domestic partners, he said. For example, if a couple lives in an expensive home that is paid for by one of the individuals, technically speaking any unpaid rent or housing expenses may be looked at through the eyes of the IRS as a gift to the other individual. While Hollander added that this is not an area that is usually looked at, technically these expenses are gifts.
