Planning for Domestic Partners
On one hand, planning for domestic partners is complicated. The common estate planning techniques take advantage of the fact that Federally recognized spouses can make unlimited, tax-free transfers to each other. Domestic partners don’t have this ability, and if they have taxable estates, this presents a very big problem: when one partner dies, there will be tax due and payable within nine months of the death. Fortunately, planners have devised techniques to reduce these taxes. Unfortunately, these techniques are complicated, and partners with estate tax issues should find planners with substantial tax planning experience.
On the other hand, partners who do not have estate tax issues do not need complicated techniques. (Click here for help determining if your estate is taxable.) For most domestic partners, common planning techniques will work with only minor changes. Powers of attorney and Advance Health Care Directives are used to give partners the right to make financial and health care decisions. Trusts are used to give partners control of each other’s estate and keep courts out of the process. And wills are used to provide the backstop instruction that you intend for your assets to pass for the benefit of your partner.
That means that many domestic partners can use Practical Plans.
There is one catch.
California domestic partnership rules say that registered domestic partners are “spouses,” but Federal tax rules say that domestic partners are “unrelated” (even if they are registered). The IRS doesn’t like it when unrelated people combine their assets in joint ownership, and the government’s solution is taxing all of the joint assets as if both people own 100%. Good recordkeeping can reduce this risk of double tax, but Practical Plans asks, “Why put yourself in that situation?” Joint trusts by unrelated people increase the risk of tax issues, so we don’t do joint trusts by domestic partners. Although that isn’t very satisfying from a psychological or emotional point of view, it is the practical solution.
If you have a domestic partner and you want to use Practical Plans, each of you should register and create your own estate plan. When you answer our interactive questionnaire, the information you provide will help us make the minor changes so your estate plans complement each other.
So go ahead. Head to New User Registration and take control of your plan today.
