What LGBTQ+ Couples Should Know about Estate Planning in NJ

Same-sex couples gained the right to marriage benefits after the 2012 United States v. Windsor case. The court ruled that the federal government cannot deny same-sex couples the benefits and protections other spouses enjoy by declaring unconstitutional the Defense of Marriage Act’s definition of marriage as a heterosexual union. New Jersey followed suit in the Garden State Equality v. Dow case.

Now that same-sex couples can marry in New Jersey and elsewhere, they are subject to the same tax and other laws and privileges applicable to married couples. As such, they, too, must consider life and death consequences as a couple and family, including tax, insurance, retirement, and inheritance considerations. Creating an estate plan to overhaul prior wills or trusts or create new ones is advisable. Such a plan enables those previously denied decision-making and authority over their life and inheritances to enjoy the previously unavailable benefits and protections.

Distinctive Issues Facing Same-Sex Couples when Estate Planning

Though same-sex marriage is accessible, same-sex couples face unique estate planning difficulties. For example, gay or lesbian couples are more likely to adopt children, who pose inheritance challenges that an estate plan can address. Adopted children may not be able to inherit from their parents as easily as biological children. An estate plan can ensure children inherit from their adoptive parents.

Other privacy issues and social stigma may cause estate planning issues at critical times. For instance, LGBTQ+ community members often face family and others who do not accept their lifestyle choices. Therefore, a member may choose to keep their same-sex marriage secret. Down the road, that could lead to confusion when one or both marital partners die, and their estate planning wishes are not fulfilled because their marital status is unknown.

Equal Rights in New Jersey Same-Sex Marriages and the Impact on Estate Planning

Following Windsor, the Supreme Court in Obergefell v. Hodges determined that the right to marry, including same-sex marriages, is fundamental and protected under the Constitution. Thus, same-sex marriage became legal throughout the nation. October 21, 2013, marked the legal recognition of same-sex marriage in New Jersey after a trial court eliminated marriage restrictions for same-sex couples. In January 2022, New Jersey Governor Murphy signed legislation making same-sex marriage legal. Since New Jersey treats same-sex marriage the same as opposite-sex marriage, they get equal treatment under the law, including tax savings and estate planning that protects assets for inheritance and caretaking purposes.

So, when domestic partnerships and civil unions were the only options available to same-sex couples, their estate plan options differed from those available after they married. More options for spouses include various trusts, like the QDOT, and property ownership holdings, such as tenants-by-the-entireties. Spouses may also make tax-free gifts to each other, which may have asset protection advantages. Another benefit is eliminating the life insurance policy used to avoid state Inheritance Tax for unmarried domestic partners. A life insurance policy ensures the surviving partner can pay taxes. As spouses, they can inherit from each other without state inheritance and federal estate tax reducing their assets.

Other spousal advantages include portability options that allow one spouse to hold their deceased spouse’s exemption from the federal estate tax Applicable Credit (the tax-free amount up to $40,000.00 the federal government allows when one spouse passes), so they can use both their own and their deceased spouse’s, doubling the tax savings on inherited property. Besides the tax-free gifts, married couples can split the annual gift tax exclusion, which allows up to $15,000.00 in tax-free gifts and doubles their gift tax savings. So, a couple can gift a child $30,000.00 annually or divide that total to gift several people. Other tax benefits include generation-skipping tax savings and splitting annual exclusions.

Finally, specific retirement plans automatically designate the spouse as beneficiary, regardless of the employee plan holder’s beneficiary designating someone else. Substituting a spouse with another beneficiary requires the beneficiary spouse’s permission.

Key Differences Between Marriages, Civil Unions, and Domestic Partnerships for LGBTQ+ Individuals in NJ from an Estate Planning Perspective

Before legal same-sex marriage, civil unions and domestic partnerships were the more common legal options for same-sex couples to gain rights and responsibilities as alternatives to marriage. However, these arrangements differ from marriage in key ways. Domestic partners may not inherit from their partner other than by a proper will, but spouses automatically inherit a portion of their spouse’s estate. In addition, domestic partners must pay federal inheritance taxes from their partner’s estate, while spouses have exemptions. Domestic partners also miss out on the full breadth of tax benefits married people do. And while civil unions are closer to marriage regarding benefits and legal protections, they are only recognized by the state, not the federal level.

In an LGBTQ+ Relationship in NJ? Reminders for Your Estate Plan

Protect Your Assets and Your Choices after Your Passing

Since LGBTQ+ members often meet with disapproving parents or siblings, estate planning is critical to control essential family matters. For example, having a will designating a spouse or partner as the primary beneficiary is crucial so no one can challenge the rightful heir to the deceased’s property. Many opt for trusts to avoid probate, which requires fee payments that reduce estate assets and a lengthy process in which creditors can make claims and others can challenge the validity of a will. A living trust does the same thing as a will: passes property to beneficiaries, designates guardians for minor children, specifies funeral plans, and appoints powers of attorney. However, it does not go through probate, a public proceeding. Living trusts maintain privacy and fulfill the decedent’s wishes.

Ensure that Your Partner Has Decision-Making Authority

One such power of attorney in a trust authorizes someone to make healthcare or financial decisions for the person named in the power of attorney should the person become incapacitated and unable to make those decisions. Designating a spouse or partner ensures that a beloved partner or spouse makes those important decisions.

Provide Your Same-Sex Spouse with All of Your Benefits

Wills and trusts, as well as other important documents, should be updated with a same-sex spouse or partner’s beneficiary designation. For example, insurance policies, retirement accounts, stock portfolios, and other financial instruments must name the spouse or partner as beneficiary so that they and not another family member of the deceased receive those benefits.

Get Informed Assistance with LGBTQ+ Estate Planning from Our Attorneys in Brick and Sea Girt, NJ

Hiring an estate planning attorney who services the LGBTQ+ community is essential to guarantee that your future needs will be met and anticipated by someone familiar with the issues unique to this community and same-sex couples. At Bronzino Law Firm, we can provide the dedicated assistance, legal counsel, and personalized care you need to handle your estate planning concerns. Our estate planning lawyers are highly familiar with the community and we can help to help that a transgender partner understands the gender matching requirements to the gender on their birth certificate to avoid future healthcare and burial issues. We also can advise you, knowing the potential for will contests among unsupportive relatives who deny your spouse or partner’s beneficiary rights.

An LGBTQ+ estate planning attorney at our firm has your back when securing your rights under the law for you and your loved ones in Eatontown, Rumson, Long Branch, Point Pleasant, Howell, Sea Bright, Colts Neck, and elsewhere in Ocean and Monmouth County. Contact us at (732) 812-3102 for a complimentary consultation or ask us to reach out to you via your preferred contact information by completing our form.