Securing the future as life partners: If you don't want to — or can't — marry, it's critical to stitch together some legal protections By Jane Bennett Clark, Tribune Media Services, 1:20 PM CDT, August 19, 2010Julie Kurland and Marcia Diehl live in a Victorian home in Takoma Park, a leafy Maryland suburb of Washington, D.C. The couple take turns walking their dog, Cody, past the 1920s bungalows and gabled Victorians that line the streets of their neighborhood. On Sundays they wander over to the farmers market and spend the rest of the day gardening or reading on their wide front porch.
It's a routine that befits any contented couple. But Kurland, 46, and Diehl, 56, are not married, nor would their union be recognized federally or in all but five states. And while a California court case regarding the legality of same-sex marriage winds its way through the appeals process (likely to end up before the U.S. Supreme Court), there still remains this present-day reality:
Gay couples, and straight couples who'd prefer not to marry, lack the legal structure that protects married couples' rights on everything from property division to end-of-life decisions. Instead, they must create their own framework.
"It's much more important for gay couples to have their documents lined up," said Kurland. "We have to be sure we have our t's crossed and our i's dotted."
Regardless of who you're partnered to, if you commit to each other without tying the knot, these steps will help you avoid being caught in legal limbo:
Powers of attorney: Diehl's parents, who are deceased, never acknowledged her relationship with Kurland. Had Diehl suffered a health crisis that rendered her unable to make her own decisions, "they would have thought it was their privilege, not Kurland's, to make the decisions for me," said Diehl. In most states, spouses and blood relatives take priority over nonrelatives in the absence of a document that specifies otherwise. Diehl and Kurland assigned each other a health-care power of attorney, a state-specific document (available free at doctors' offices, hospitals and on the Internet) that lets each make medical decisions on the other's behalf. They also gave each other a durable power of attorney, which conveys the right for each to make financial and legal decisions for each other. A durable power of attorney goes into effect as soon as you sign it or upon a triggering event. Consult a lawyer about the choices.
Put it in writing: As singles, "you only have rights to something in the other's name if there is a written agreement," said Frederick Hertz, co-author of "A Legal Guide for Lesbian and Gay Couples" (Nolo, $34.99). A cohabitation contract, like a prenuptial, lets you formalize financial and living arrangements while you are together and spell out who gets what if you break up. Drawing up a contract can run a few thousand dollars for a simple agreement, to $25,000 for a complex one. Consult a lawyer.
Wills: Without a legal will, your estate will be divvied up according to state intestacy law, which generally favors spouses, children and other relatives, not significant others. To avoid leaving your partner in the lurch, spend the $300 or so necessary to have a lawyer draw up a will or do it yourself online.
If you are the biological parent and want your partner to raise your child after you die, be sure that you nominate him or her as the personal guardian. As with any guardianship, the court has to sign off on the nomination, but it generally respects the legal parent's wishes, with one significant exception: The other legal parent — say, a former spouse — is willing and suited for the job.
Establish joint ownership: In some states, married couples or those with marital rights can title jointly owned property as tenancy by the entirety. Each spouse owns the entire property, and neither can sell without the other's OK. When one spouse dies, the survivor inherits the property, avoiding probate.
Unmarried couples may own property two ways: tenancy with the right of survivorship and tenancy in common. With the first, you own the property 50-50. When one of you dies, ownership passes to the survivor automatically. You can sell or give away your half, but you can't bequeath it to someone else. Some unmarried couples choose this setup to avoid the public process of probate or as backup to a will. Tenancy in common is more flexible: It lets you own unequal shares of the property, and, if you sell, you walk away with whatever percentage you contributed.
Keep track of gifts: Married couples in the eyes of Uncle Sam can give each other unlimited assets without tax consequences. But unmarried heterosexual couples and all same-sex couples are considered "legal strangers" for federal tax purposes, said Dana Levit, a financial planner in Boston and president of PridePlanners, a nonprofit financial-education group. That awkward status requires you to report gifts to each other of more than $13,000 a year (as of 2010). The excess counts against each individual's $1 million lifetime federal gift-tax exemption. Even if you're not in the habit of writing each other fat checks, you could exceed the $13,000 limit by, say, putting your partner on the title to a house you own. Although most people never reach the $1 million limit, you lessen your risk by transferring assets incrementally, said Hertz. "Give early, often and in small amounts." Also be careful to document your contributions to any joint property owned as tenancy with the right of survivorship. Lacking evidence to the contrary, the IRS assumes that the entire property belonged to the first person to die and calculates the estate-tax obligation accordingly. Keeping separate bank accounts helps clarify who paid for what, said Carrie Aburto, a financial adviser at Aspen Wealth Management in Denver.
Minimize your taxes: As single filers (same-sex married couples, in states that legally permit same-sex unions, generally have to file as marrieds on their state taxes and as singles on their federal taxes), you can allocate your deductions to maximize the tax benefit. For instance, the partner who earns more income can pay the mortgage and deduct the interest, while the other partner takes the standard deduction. "Taxes are one area in which it's often good to be gay," said Levit.
Likewise, if you have a child, one of you can claim the child as a dependent on your federal tax return. Assuming that the same parent provides more than 50percent of the child's support, he or she also can file as head of household, which usually results in a lower tax bill. Couples with two kids may be able to split the difference, each claiming one child as a dependent and filing as head of household.
As singles, you have a good chance that at least one of you will fall below the income limits for tax benefits or tax-preferred accounts. Say one of you has an income that exceeds the limit for contributing to a Roth IRA, (which in 2010 is $120,000 for singles; $177,000 for married couples filing jointly) and the other has earned income that falls below the limit, the one who earns less can still establish a Roth IRA.
Provide for your survivor: You won't have access to spousal Social Security benefits, but each of you can still name the other as beneficiary of your retirement accounts. Nonspousal beneficiaries of IRAs and 401(k) plans can take distributions from an inherited retirement account over their lifetime.
As for life insurance, leave enough so that each of you will be able to live comfortably if the other dies first. These days, term-life policies come cheap. A 50-year-old woman in good health can pick up a 20-year term policy with $500,000 of coverage for about $700 to $850 a year. A healthy 50-year-old man can buy the same for about $950 to $1,200.