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Blogging from Heckerling -- Let’s Get It Right the First Time. Avoiding Conflicts with Trusts Established to Benefit Same-Sex Couples

Blog Post 3 of 4

Many same-sex couples living in states that recognize their marriage believe that, after “Windsor,” their marriages are now no different than any opposite-sex marriage. This is simply not true.  Until all 50 states recognize same-sex marriages, there are many issues that need to be carefully considered in trust and estate planning.

Consider the following situation highlighted at the Heckerling Institute on Estate Planning:
Steven and Bill are a same-sex couple married and living in California (a recognition state).  Steven’s mother, a Florida resident, passed away several years ago.  There is a GST exempt trust set up by Steven’s grandmother that would pay out in trust to Steven and his two sisters upon their mother’s death.  This trust is a Florida Trust (non-recognition state).

If the trustee is directed to pay income and principal to Steven, his spouse and his dependents but the trust failed to clearly define “spouse” and “dependent,” will Bill be considered a “spouse” and entitled to payments?  What if Steven is not the biological father of the children they are raising – will they be excluded as beneficiaries?  To avoid this potential problem, we need to be sure our client trust documents have clearly defined terms.  Spouse and marriage must clearly include same-sex spouses, domestic partners, civil unions etc.  The trust must also make clear that the laws of the state in which the beneficiaries are domiciled is not relevant in defining spouse and marriage, thereby allowing the beneficiary to move to non-recognition state without issue. Children/descendants must include non-biological children born to a person’s domestic partner or same-sex spouse during the marriage.  Formal adoptions should always be used by same-sex couples.

We also need to think about existing documents where the language used does not come to our attention until there is a problem. (Steven’s sisters are suing for a bigger share since they do not believe his family qualifies).  It is very possible that in our case the grandmother was very aware of her grandson’s same-sex marriage but never asked about it by attorney.  The trust could be so old that the possibility that her grandson would ever be allowed to marry may never have crossed the mind of attorney or donor.  If a trust is ambiguous as to spouse and descendant, the courts will look to donor intent.  Was the donor aware and accepting of the beneficiary’s same-sex relationship?  Did the donor have a good relationship with the spouse? Did the donor treat all grandchildren the same?  If still unclear, state law may step in and define family under “public policy” in the state the proceeding is brought.  If that is Florida, the courts may take a much narrower view of the definitions in question.

It is important we are aware of the family situation of all our same-sex couples and inheritances they are expecting or currently benefitting from and that we make them aware of possible problems in the language to hopefully avoid a lot of family problems down the road.

Barbara Taibi is a Partner in the Personal Wealth Advisors Group with years of public accounting and income tax planning and tax return preparation experience. Barbara focuses on helping clients plan for and meet their financial and tax goals.

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