Monday, October 3, 1994
A.J. Alfieri, right and his partner Kevin Crispin have discovered its not simple making legal arrangements for the future. Photo: Judith Calson - Mercury News
For many unwed couples, it's not
marriage -- it's money!
This financial primer for domestic
partners could save your assets
The 'M' Word
BY MARK SCHWANHAUSSER Mercury News Staff Writer
BJ FADEM knew something was wrong the moment she unlocked her front door. The house echoed.
In the wake of a nasty breakup that had begun 10 months earlier, Fadem had resorted to evicting her partner. As Fadem stepped into her San Jose home that December night three years ago, it sank in how thoroughly she had been cleaned out.
Her lover had taken Fadem's heirlooms. She'd packed up Fadem's wardrobe. She'd walked off with virtually all the furniture but the big-screen TV, which was too big to handle. She'd emptied their joint bank accounts. She'd stolen Fadem's car and lent it to friends. And since that time Fadem hasn't seen her lover's 7-year-old boy, whom Fadem adored like a son, having raised him from an infant. "Legally," Fadem says wistfully, "I'm not entitled."
Fadem's life is much different today. She's now in love with Miki, who has adopted her last name. They will marry in their church in December. They've refurnished and split the ownership of their home, which they share with the Fadem "menagerie" of seven cats, a Shih Tzu, hamsters, a miniature rabbit and a tank of tropical fish. And any day now, Miki says as she pats her belly, they hope to hear that Miki is pregnant with a baby, whom BJ would legally adopt.
Underlying their relationship is a complex web of legal arrangements designed to avoid a repeat of BJ's earlier saga. The frustrating thing for the Fadems is that simply by marrying, heterosexual spouses are handed a standard package of legal rights regarding such matters as community property, estate planning, taxation, medical care and more. But gays and lesbians must construct their legal net one strand at a time. The same is true for unmarried heterosexual couples, of course. But heterosexuals generally are less troubled that. The law turns to their family when specific legal documents haven't been put in place. Many gays and lesbians, however, prefer to have the law turn to their partner.
Without legal planning, surviving partners have little protection against families intent on blocking them from medical decisions and control of assets, an issue that was underscored when Gov. Pete Wilson vetoed legislation in August that would have made California the first state to recognize domestic partners.
"For domestic partners, it's a very different reality," says Jim Cashman, a tax attorney with Berliner & Cohen in San Jose. "The law isn't necessarily not in their favor; it just doesn't speak to them."
A.J. Alfieri and his partner, Kevin Crispin, have discovered that firsthand. They want to protect themselves, but they've discovered it's not a simple task. For one thing, it can be emotionally draining to ask the questions that inevitably arise: What if one of us gets sick or dies? What if we break up? What if our families try to interfere?
But on a practical level, it's a chore to shop for lawyers, accountants and financial planners who have experience and interest in these issues. The choices can be complex and require study. And it's hard to find time.
"The biggest problem with planning for death," a frustrated Alfieri jokes, "is life gets in the way."
Perhaps the first task is to analyze what you need or want -and where you're unprotected. If you do nothing else, experts recommend you focus on four areas: estate planning, the ownership of assets, powers of attorney, and a legal outline of your relationship.
-- BJ Fadem, pictured right, a trial lawyer who draws up $600 domestic-partnership packages in her spare time
'What you have to do is go to a lawyer and essentially have them marry you on paper. The only way you can be recognized as a couple is to have these documents drafted .... Then, in the eyes of the law, you're married.'
Estate planning
Planning for death is important for virtually anyone with family, partners or substantial assets. But because same-sex marriages aren't recognized, homosexuals have two especially important reasons to plan their estate. One is the issue of control. The second is taxes and expenses.
If nothing else, you need a will. That document allows you to do such things as leave your property to whomever you want, map out funeral arrangements, pick the person who will disburse your estate and select a guardian for your children.
But if you're over 40 and have more than $50,000 in assets, you should investigate plans beyond a will, according to "A Legal Guide for Lesbian and Gay Couples," (Eighth edition, Nolo Press, $25). If you design it so your property avoids passing through your will, it also will avoid passing through the costly and time-consuming probate court.
This step sometimes is less import for heterosexual married couples because they qualify for the "marital deduction," a tax break that allows an unlimited amount of property to pass tax free to the surviving spouse. Unmarried partners don't qualify, however.
There are several trusts that might be appropriate. One is the so-called living trust, which allows your partner, for instance, to 1ive in your house and live off your investments after you die; upon your partner's death, the assets go to whomever you designate.
Ownership of assets
It might surprise you, but your will is not necessarily the final word on what happens to your estate. Depending on how you hold title to substantial assets -- your house, car, bank account, investments -- and who you name as a beneficiary in any retirement plan or life insurance policy, your will may have little or no bearing on who gets what.
If, for example, your life insurance names your parents as beneficiaries, or if you and they together hold title to your home, those arrangements may trump your will.
Checking or changing a beneficiary is straightforward. For instance, if you want your life insurance or retirement benefits to go to your partner, make sure that person's name is on the form.
Titling of assets is trickier, and deciding which way to go will depend upon such issues as taxes and creditor protection. Domestic partners have two choices: joint tenancy or tenants in common.
Under joint tenancy, you own the property 50-50. One big advantage is that when you die, your half automatically passes to your surviving joint tenant, even if you have not made that disposition in your will. There also can be significant estate tax advantages if the asset has risen in value since you purchased it. Conversely, there can be tax disadvantages if the asset has dropped in value. And, finally, joint tenancy can protect your partner's share from your creditors.
Tenancy in common is more flexible, because you and your partner can declare fractional splits of the property and thereby enable one to benefit more, say, from mortgage tax deductions. You also can control who gets your share through your will or living trust, but only through such a document. In the absence of a will or trust, your share will pass through probate and be distributed to your family. It will not pass automatically to your partner.
Although joint tenancy usually makes more sense, experts say, planning can quickly turn complex when it involves a substantial asset such as a house. For instance, it's not uncommon for one partner to want to share his or her equity with their lover.
It might seem tempting to quietly change your deed to joint tenancy -- a strategy many couples follow, including heterosexuals who add their children to the deed. But be aware you're legally required to report that change for tax purposes. Among other things, that could leave your estate liable for eventual gift taxes, expose your property for reassessment (a major liability if you've owned it a long time and have enjoyed the protection of Proposition 13), and leave you vulnerable if you're audited.
The bottom line is to educate yourself about your options -- and there are several -- before you act.
BJ Fadem, left, and Miki Fadem have split ownership of their home. Photo: Judith Calson - Mercury News
Powers of attorney
Whether single or in a relationship, every gay or lesbian should ask themselves: Who do I want the doctor or law to turn to if I get so sick I can't make decisions on my own?
As it now stands -- and this was a central issue of the bill Wilson vetoed -- your doctor legally is bound to turn to your family for decisions regarding your medical care, Unless you plan otherwise. And if your family frowns on your lifestyle, they may ignore your partner in medical decisions or even ban him or her from your hospital room.
Cold as it may sound, "The lover is considered a legal stranger," says Robin Leonard, co-author of "The Legal Guide for Lesbian and Gay Couples."
To avoid this, there are two medical documents you should consider:
The first is referred to by many names, but most commonly it is called a "living will." This document spells out what kind of medical treatment you do or don't want, such as life-support care. This document takes effect only if you are diagnosed with a terminal condition or are in a permanent coma, not when you can communicate directly with your doctors or are only temporarily unconscious.
The second document is the "durable power of attorney for health care." In it, you designate who will be responsible for making medical decisions on your behalf. It can take effect when you sign it, or it can be a "springing" power of attorney that takes effect only if you are incapacitated. You can revoke the power of attorney when you are competent.
While the power of attorney for health care is expansive, it does not extend to your finances. If you trust someone to handle your money matters in the event you become incapacitated, you also should consider a "durable power of attorney for finances." You can set the limits on your proxy's powers, and you also can make it a "springing" document.
Living-together contract
In many ways, a written living-together contract is similar to a prenuptial agreement. As such, it can smooth your affairs in case you die, simplify matters if you break up with your partner and provide guidance to courts if disputes arise. But the truth is, the benefits often get lost amid the cloud of emotion.
"That's the funny thing: People never want to clutter love with reality," says Mary Ann Maxson, an enrolled agent who owns "Max's Taxes" in San Jose. "Come on, when people are in love, they're not very bright. Love feels good. Dealing with money doesn't feel good."
Technically, living-together contracts can be verbal, but those "are brutal to prove," Leonard says. Instead, as awkward as it sounds, you're better off writing down how you and your partner want to delineate your relationship. You don't have to get detailed to the point of who gets the lawn chair, but you should address property you each owned before living together, gifts or inheritance that might come along, property you acquire while a couple and what expenses you'll share. This also is a useful place to note that one partner is entitled to a stake in the house even if the partner's name might not appear on the deed.
Although it is similar to a prenuptial agreement for heterosexual couples, a living-together con tract can be much more symbolic and meaningful to domestic partners -- gay or straight.
To Maxson, it's an issue of simplifying life. "The first word that comes to mind is clarity," she says. "You just know where you stand. You know where you stand today, and you know where you stand tomorrow. And if the worst happens, at least while you're dealing with the emotional, you're not dealing with the financial."
To Alfieri, it's an issue of love and self-control. "It's a respectful thing to do for the other person to ensure you get this handled," he says. "It's always the power of possibility, the ability to sculpt your future and your situation rather than be handed some potentially half botched-up job figured out by somebody else and perpetuated by tradition."
And to Fadem, it's largely an issue of recognition. "What you have to do is go to a lawyer and essentially have them marry you on paper," says BJ Fadem, a trial lawyer who draws up $600 domestic-partnership packages in her spare time. "The only way you can be recognized as a couple is to have these documents drafted .... Then, in the eyes of the law, you're married."
HELP AVAILABLE
Here's a list of agencies that can provide social or legal counseling or referrals:
Billy DeFrank Lesbian & Gay Community Center: Offers information referral, peer counseling and other services. Call (408) 293-2429.
Gay Legal Referral Service: A referral service for Bay Area attorneys. Call (415) 621-3900.
Lambda Legal Defense & Education Fund: A national information referral. Call (213) 629-2728 or (212)995-8585.
National Center for Lesbian Rights: A national information re ferral. Call (415) 392-6257 or (212) 343-9589.
Santa Cruz Lesbian/Gay Bisexual Transgendered Community Center: Offers information referral. Call (408) 425-5422.
Silicon Valley Business Association: A referral service for businesses operated by gays and lesbians. Call (408) 496-8804
Source: Mercury News
CRUCIAL RIGHTS
Domestic partners -- whether gay or straight -- are denied many legal rights that come automatically with a marriage license. Those generally include the right to:
File joint tax returns.
Automatically make medical decisions if your partner is injured or incapacitated.
Automatically inherit your partner's property if he or she dies without a will.
Enter hospitals, jails and other places restricted to "immediate family."
Create a marital life estate trust.
Claim the unlimited marital deduction from estate taxes.
Receive survivor's benefits.
Obtain health and dental insurance, bereavement leave and other employment benefits.
Collect unemployment benefits if you quit your job to move with a partner who has obtained a new job.
Claim family partnership income,
Recover damages based on an injury to your partner.
Live in neighborhoods zoned "family only."
Get residency status for a non citizen spouse to avoid deportation.
Source: Adapted from "A Legal Guide to Lesbian and Gay Couples," by Hayden Curry, Denis Clifford and Robin Leonard (Eighth edition, Nolo Press, $25)
IF YOU'RE INTERESTED
The following information is out of date, just included for thoroughness. The Billy DeFrank Lesbian & Gay Community Center in San Jose will offer a free seminar on financial planning for domestic partners and single gays and lesbians at 4:30 pm Sunday. For information, call (408) 293-2429.