Domestic Partnerships
What is a domestic partnership?
Domestic partnerships encompass a significant range of relationships. The most popular concept of domestic partners is to think of same-sex couples. It is currently illegal in Michigan for same-sex couples to marry, but the law is changing rapidly in this area and serious challenges to Michigan law are currently underway in the federal court system.
In addition, we can also think of a domestic partnership to include a man and woman that are cohabiting together but, for whatever reason, are not married.
We may also consider domestic partnerships to include any two or more people that reside together on a permanent basis and have no romantic or familial relation at all. Some scenarios may be two siblings living together, or two life-long platonic friends that happen to own and share a household. No matter what your living situation is, you and your partner can benefit from estate planning.
Can I just put my domestic partner in my will?
Under Michigan’s Intestate laws, a domestic partner is excluded from inheritance from the other partner unless that person is legally married or has a close enough kinship to the other partner. In this situation, as well as any other life situation that a person might have, it is always recommended at the very least to have a will. Domestic partners can name one another as devisees to the assets of their estates and may inherit through these means if drafted properly.
However, a will does not avoid the domestic partner’s estate from having to go through the probate court and this creates some unique problems for same sex couples:
1. Like anyone else going through probate, the estate is subject to the delays and potential high costs involved with administration.
2. The chances of contestability to the will are higher. We do not yet live in a world where domestic partnerships are universally accepted, so the probability is that a family member or friend can protest the wishes of the domestic partner and subject the estate to even more delays and costs.
3. The privacy of the relationship is shattered. The will and the administration of the estate will become a matter of public record and subject to the scrutiny of any person passing through the courthouse.
A will is still an effective tool and should supplement any other estate planning devices, but the domestic partners should consider the additional options available at law to protect their family unit.
Can I just put my domestic partner as co-owner of all of my property?
Adding the domestic partner as a joint tenant with right of survivorship appears on its face to be the ideal option for two people with a piece of property. If both domestic partners co-own their residence and one of them passes away, then the surviving partner automatically assumes sole ownership without the need for probate. It appears simple and easy.
The biggest oversight that tends to surprise people utilizing this method is state and federal taxes. One big benefit that married couples have over domestic partners is that they have the “unlimited marital deduction”, meaning that husbands and wives can transfer any amount of property between one another without any tax consequences. The domestic partners are subject to the limits of both the federal gift tax and estate tax. Under current federal gift tax law (as of 2014), an individual may give up to $14,000 of value to another person during a calendar year without activating the gift tax. Under current estate tax law (as of 2014), an individual may transfer up to $5,340,000 total during life or after death without activating the transfer tax. The transfers made during the individual’s lifetime will reduce the total estate planning transfer threshold by the value of gifts made (unless gifts were in the $14,000 limit). Once these thresholds are exceeded, the estate may be subject to a federal estate tax of 40% as of 2014.
Congress can and does change these thresholds from year to year, so the unwitting domestic partnership can fall prey to these very real taxes by a slight modification of the law. An estate planning attorney can help assess your estate and determine the best course of action to potentially avoid these steep taxes.
So how can I plan for my domestic partner?
There are many effective options available for domestic partnerships. A revocable living trust is an excellent tool in which the domestic partners place their assets under the ownership of the trust and, should one of the partners die, the trust distributes the assets according to the trust agreement and on the terms of the domestic partners. This method avoids the delays and costs of probate, preserves the privacy of the relationship and potentially avoids or decreases the effect of state and federal taxes. A pour-over will for both domestic partners would back up the trust to take care of loose ends in the event that the trust failed in any way. Domestic partners can also create a durable power of attorney or a patient advocate designation to enable their significant other to act or make decisions on their behalf in the event that the domestic partner becomes disabled in any way. These tools become even more important if the domestic partners have any minor children in common.
An estate planning attorney can help you determine what options work best for your unique situation to ensure that your loved ones and property are protected according to your wishes. Contact our office today to schedule a consultation with our knowledgeable attorneys.
