Estate Planning for California LGBTQ couples

If you’re in a same-sex relationship in California, you might be seeking estate planning advice relevant to your unique issues. Many LGBTQ couples want to find an estate planning attorney who understands their specific needs and concerns. Whether you’re a married same-sex couple or in a registered domestic partnership, here are four estate planning tips for California LGBTQ couples.

#1: Both spouses and domestic partners are legally entitled to inherit property if their significant other dies without a will.

Many gay, lesbian, bisexual, or transgender people will feel relieved to know that their spouse or domestic partner is legally entitled to inherit their estate upon their death if they die without an estate plan. This was not always the case in California.

Before 2003, the domestic partnerships often used by same-sex couples in California were not as inclusive as a marriage. If one domestic partner died without an estate plan in place, the other partner was NOT legally entitled to inherit their loved one’s property.

In 2003, Assembly Bill 205 changed that rule in California and granted the right to inherit property to both married couples and domestic partnerships. However, here are two issues to be careful of:

• If you are cohabitating but are not married OR registered domestic partners, your significant other is NOT entitled to any of your property when you pass away – UNLESS you create an estate plan and list them as a beneficiary.
• If you are in a domestic partnership and separate from your partner, you must either get a traditional divorce or file a Notice of Termination of Domestic Partnership with the Secretary of State. Without these formalities, your ex is entitled to automatically inherit your estate when you pass away.

For all LGBT couples, the best approach is to create a comprehensive estate plan that specifically outlines your wishes, leaving no question concerning your intent for your estate.

#2: An estate plan gives you the power to name a guardian for your minor children.

Some gay, lesbian, or transgender couples may have children from a prior relationship or may choose to adopt a child or children together. You may wonder who would care for your child(ren) if something were to happen to you. Usually, when a parent passes away with minor children, a judge decides who they believe to be the best guardian for the kids, often giving strong preference to the child’s biological parent.

If you wish to name your spouse, domestic partner, or someone else as a minor child’s guardian in the case of your death, it is imperative that you create estate planning documents including a revocable living trust and/or will. These legal documents allow you to name the guardian of your choice instead of leaving that decision up to a judge who is unfamiliar with your family.

#3: Carefully consider how you hold real estate titles to save on capital gains tax.

Many Californians who haven’t yet created an estate plan hold their real estate in joint tenancy with another person. When one of the joint tenants passes away, the other one automatically owns the property by right of survivorship – but the tax consequences may not be optimal.

If your real estate is held in joint tenancy with a partner and you die, they will receive a step-up or step down in cost basis for the decedent’s half of the real estate ONLY. A step-up in basis readjusts the value of an appreciated asset over a period of time for tax purposes, saving the surviving partner significant capital gains taxes.

Alternatively, you can opt to hold your real estate as community property with the right of survivorship – a title option available to both married couples and domestic partners. In this case, when the first spouse or partner dies, then the ENTIRE property would receive a step-up in cost basis, resulting in major capital gains tax savings if the property is later sold.

For most California homeowners, the best solution of all is to create a revocable living trust and transfer your real estate into your trust. This allows you to:

• Skip an expensive and long probate
• Secure a full step-up in basis
• Design every aspect of how you’d like your assets to be distributed upon your death

#4: Make sure beneficiary designations on retirement accounts and life insurance reflect your wishes.

Some assets, like retirement accounts or life insurance policies, are distributed upon your death to the person listed as the beneficiary of that asset. If you’re married or in a domestic partnership and you wish for your spouse or partner to receive these funds upon your death, make sure you have listed them as the account beneficiary. 

If you need to update your beneficiary, contact the institution and request a Change of Beneficiary Designation Form.

If you’re married, keep in mind that as a spouse, you can roll over a deceased spouse’s IRA into your own IRA – a right not granted to any other type of account beneficiary. This move could save you significant taxes.

If you have any questions about estate planning for California LGBTQ couples, please contact our office.

Law Offices of Daniel A. Hunt

The Law Offices of Daniel A. Hunt is a California law firm specializing in Estate Planning; Trust Administration & Litigation; Probate; and Conservatorships. We've helped over 10,000 clients find peace of mind. We serve clients throughout the greater Sacramento region and the state of California.