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Volume 34
Issue 52
 
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Planning Important for Unmarried Couples
Planning Important for Unmarried Couples
by William J. Cruzen - Special to the SGN

Under current federal and Washington law, a multitude of rights are based on a person's marital status. These include, but are not limited to, inheritance rights, community property rights, elective rights, custody rights, survivor rights and retirement benefits.

The Federal Defense of Marriage Act (DOMA) was enacted in 1996. Washington enacted a state DOMA in 1998. Both provide that marriage is only between one male and one female. In July, the Supreme Court of Washington deferred to the Legislature and upheld the state DOMA, holding that the Legislature was entitled to believe that limiting marriage to opposite-sex couples furthers procreation and the well-being of children.

The issue of same-sex marriage is increasingly complex because not all states are following the same path. Estate planners need to consider both state and federal law. In 2005, California's legislature approved marriage for same-sex couples in the state, but the governor vetoed the law, arguing that only the courts have the power to determine whether same-sex marriage should be legal. Ironically, just recently a California court of appeal held that courts do not have power to authorize same-sex marriage, but that such a change would have to come from the people or the legislature.

The California conundrum highlights the complexities of estate planning for same-sex couples. Even Massachusetts, which legalized same-sex marriage in 2003 through its courts, has continued to battle the issue. Whether out-of-state residents can legally marry in Massachusetts continues to be litigated. But regardless of whether an unmarried couple is of the same sex or of opposite sexes, the fact that they are not married creates problems and challenges that demand planning. In Washington, when the domestic relationship is between an unmarried couple, opposite sex or same sex, judicial case law has developed that provides unmarried couples some rights. This subset of laws is outside of local laws or private policies providing domestic partner benefits and rights.

The case law was developed through an affirmation of common law equitable rights arising out of a relationship between unmarried couples. In 1995, our Supreme Court tagged this relationship as a "meretricious relationship." From that case of an opposite-sex couple dissolving their relationship, a series of cases evolved into a patchwork of equitable arguments for division of unmarried couples' property. Equitable arguments have been extended to not only a mutual parting of the ways, but also the death of a party.

The courts also have extended the application to a breakup of same-sex couples and to the death of a same-sex partner. However, the case law does not establish community property or inheritance rights in domestic partnerships. Rather, the courts have found these rights based in equity, common law, partnership law and contract law.

Such limitations require an estate planner to look outside the box when representing an unmarried person or couple in a domestic relationship. A significant portion of estate planning is available only to married persons under both federal and Washington law, as is the case in the vast majority of the states. Still, estate planners have a variety of devices to use in protecting domestic partners in matters of health, finances, taxation and wealth transfer by lifetime gift and/or at death. These options should be coordinated with local and state domestic partner benefits and employer-provided benefits.

Based on the evolving law, domestic partners must be advised that cohabitation brings new levels of benefits in each other's property, but also opens up each partner to potential liability if the relationship dissolves. Accordingly, partners need to consider coordination of their respective estate plans while being made aware of conflicts of interest when represented by one adviser. Documents that each partner should implement include, but are not limited to: a domestic partnership agreement (pre- or post-), healthcare directive, healthcare durable power of attorney, financial durable power of attorney, declaration of intent for cremation or interment, a dispositive will, or a revocable living trust, coupled with a pour-over will.

It is recommended that each partner secure independent counsel to negotiate the domestic partnership agreement. The document should address the separate and joint ownership of assets, disposition on dissolution or death, definition of dissolution, simultaneous death, estate planning considerations, earnings, retirement benefits, waiver of prior cohabitation rights, as well as support, maintenance, and child custody. This agreement is key to avoiding litigation in the event of dissolution of the relationship.

The heathcare directive is something everyone should have. This document expresses one's wishes in the event of brain death, irreversible coma or vegetative state. Coupled with a healthcare durable power of attorney for each person, domestic partners can avoid the circus that surrounded the Terry Schiavo case. The partner named as the healthcare/attorney-in-fact will trump the statutory family order of priority for making healthcare decisions. Provisions can be included to ensure against meddlesome individuals' intervention or interference.

Likewise, partners should execute a financial durable power of attorney. This document permits the couple to manage each other's financial matters in the event one is incapacitated. It allows for naming successors who are compatible with the partners' relationship and to exclude adversarial interlopers.

The above documents relate mainly to lifetime governance. Turning to the inevitability of death, partners need to execute declarations for cremation or interment, which also should direct that the surviving partner or, if unable, a successor or successors who respect the partner's lifestyle, will control all funeral arrangements.

Clearly, each partner needs to execute dispositive documents: a will or, in the alternative, a revocable living trust coupled with a pour-over will. Partners do not inherit in the event the other partner dies without a will. Community property cannot exist without legal marriage. The core document, be it a will or a living trust, controls the intended disposition of the respective partner's assets and the terms of the domestic partner agreement. State and federal death tax credits and/or generation skipping transfer tax exemptions can be incorporated, depending on the size of each estate.

During their joint lives, inter-partner gifts can equalize the couple's respective estates for death taxes. Planning can be coupled with a life insurance trust(s), a limited liability company or limited partnership, a grantor annuity or income trust, or a qualified personal residence trust. Ironically, many of these tools are outside of the family limitations imposed on married or related parties and can provide substantial tax benefits to the partners.

William J. Cruzen is a shareholder with Karr Tuttle Campbell in Seattle. His practice focuses on trust and estate planning. He can be reached at 206-224-8002 or wcruzen@karrtuttle.com. Originally published in the November 2006 issue of the King County Bar Association Bar Bulletin. Reprinted with permission of the King County Bar Association.

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