Addressing the legal landscape and estate planning for non-traditional couples, challenging the traditional concepts of family in California.
By Howard S. Klein & Geoffrey M. Murray, Family Lawyers
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II. ESTATE PLANNING FOR COUPLES WHO HAVE NEITHER MARRIED NOR REGISTERED AS DOMESTIC PARTNERS
The attorney should explain to the partners (a term used throughout to indicate two persons of either same or opposite-sex who have neither married or officially registered as domestic partners) that an attorney must represent the interests of each of his/her clients and may not keep any confidences from either one of them (as compared to keeping what he/she or either partner tells the other partner or him/her from third parties). The attorney must explain the possibility of conflicts that may arise in ownership of assets (as belonging either to one partner or the other partner or both of them) and as to the distribution of assets.
The attorney must advise that both of the partners have the right to seek independent counsel. The attorney must also remember that he or she can represent both partners only if they sign a conflict of interest waiver/dual representation letter, and the partners have been advised that they have the right to seek counsel about that letter. Finally, if an actual conflict arises, and the attorney cannot properly represent both clients he or she must withdraw as counsel and advise the parties to obtain independent legal counsel.
Understanding the Marital Status and Family
Relationships of the Partners
For couples in this situation who have not together gone through the marriage or registration process, it is important that the attorney inquire as to the exact, current marital status of each of the partners, the names and ages of any minor children that each of the partners have, and of the other parent of such minor children. It is of critical importance that no spouse or minor child be in the position of being considered an omitted spouse or child of that partner and thereby acquire an intestate share in that partner’s estate. In this regard, see Probate Code Sections 21623.
The recent case of Elisa B. v. The Superior Court of El Dorado County (2005) 37 Cal.4th 108 adds an important dimension to considerations of estate planning for non-traditional couples, especially those households headed by two persons of the same sex. In Elisa B. the California Supreme Court found that a woman who had agreed to raise her partner’s twin children, had supported the artificial insemination process, and had held the children out as her own was a parent per the Uniform Parentage Act (Family Code Section 7600 et seq.). The Supreme Court’s decision was made regardless of the fact that the couple had not registered as domestic partners.
The decision in Elisa B. must be taken into account when providing services to individuals or couples who have not registered but whose households include children with whom either partner has taken a parental role. It is a foreseeable result of the Supreme Court’s decision that a child born into such a household could later claim the status of an omitted heir.
Inquiry into Existing and Future Assets and Obligations
The attorney should inquire closely into the nature, extent and ownership of all principal assets and obligations before proceeding further. Further, the attorney should not be satisfied by the clients’ word as to the titling and beneficiary designations of significant assets; rather, the attorney must examine the deeds to all real property, the most recent statements of brokerage accounts, and the face sheets and beneficiary designations of life insurance policies and retirement benefits.
Are the parties in agreement as to the distribution of those assets? What is the partners’ intent as to the distribution of those assets and of significant assets, for example a residence, to be acquired in the foreseeable future?
Does either or both of the partners have significant debts? Is it the intention of the partners, or either of them, to incur substantial debt in the foreseeable future – for example, in connection with the purchase of a residence? What is the position of each party as to those debts? If the debt is, or is to be, joint, will the partners be jointly and severally liable? If the debt is, or is to be, an individual debt, will the debtor partner hold the other partner harmless and agree to defend him/her therefrom?
Explanation of the Property Law as it Affects the Cohabitants
The parties must be given to understand the differences between separate property, joint tenancy, tenancy in common, and payable on death holdings as it affects their property. Are the parties in agreement as to what that holding should be as to each principal asset?
Because the cohabitants will be holding many assets during the period of their life together, it is important that they execute a cohabitation agreement in addition to the usual estate planning documents. In the cohabitation agreement, the partners should define the rights and responsibilities flowing from their relationship as to:
(1) The respective interests in real and personal property acquired by either or both of them;
(2) The interest of a partner, if any, in the income of the other partner;
(3) Whether a partner will commit to the ongoing financial support of the other partner;
(4) The right of a partner to be supported, and of the other partner to give that support, if the cohabitation terminates;
(5) Whether the parties agree to pool their income;
(6) Whether the parties agree to hold all property that is acquired during their relationship in accordance with the law governing community property;
(7) The agreement of the parties with respect to raising and supporting any children of the relationship, recognizing that the parties’ agreement regarding children is not binding on the Court should the matter ever come before the Court for determination.
The California Court of Appeal in the famous case of Marvin vs. Marvin (1976) 18 Cal.3d 660, held that the Court shall enforce such an agreement (except of course with respect to child issues) so long as the agreement does not rest on the consideration of “meretricious sexual services.” Cohabitation agreements are governed by the law of contract, which is contained in the Civil Code, and not by the Family Code, except regarding child issues.
Usual Estate Planning Documents
The parties will probably need to execute the usual documents of estate planning, including wills, a joint living trust or separate living trusts, advance health care directives, general and/or limited durable powers of attorney for financial management, nominations of conservator, funeral and burial/cremation instructions, trust transfer deeds, assignments of assets, and so forth.
The estate planner must remember that most of the favorable federal tax laws which are central to estate planning for married couples just do not work with non-married cohabitants (or to same-sex domestic partners, whether registered or not). For example, there is no marital deduction for non-marrieds. There is no inter-spousal deeding without adverse tax consequences. Thus, the simple placement of one cohabitant’s property into a joint trust may constitute a taxable gift. So may the pooling of assets or the deeding of one cohabitant’s property to the other in order to equalize the estates. In short, even transactions that appear innocuous must be reviewed closely.
Naming Back-Up Fiduciaries
It is essential that the estate planner has the client’s name alternate and second alternate executors and successor and second successor trustees, agents and conservators, so that if the partner of the testator, trustor, principal or conservatee does not survive or is incapacitated, the family of the testator, trustor, principal or conservatee can not step in to drastically alter the administration of the will, trust, advance health directive, power of attorney, or conservatorship. This occurs frequently when the family is estranged, distant or hostile and thus might be motivated to thwart the intent of the client. Further, if the client feels strongly that he/she does not want the family to serve in a fiduciary capacity, that should be expressly stated in the document.
No Contest Clauses
To help ensure that the estate plan of the cohabitants is not overturned by a contest of the principal dispositive instruments, it is frequently quite helpful to include no-contest clauses in the trust(s) and will(s) directing that unsuccessful contestants receive nothing under the instrument. And, of course, the no-contest clause should be coupled with a provision leaving some distribution of modest, but not inconsequential, value to those family members or others who might be expected to mount a challenge if they had nothing to lose by doing so.
Howard S. Klein, a Certified Specialist in Estate Planning, Trust and Probate Law**, is the head of West Los Angeles Law Firm, Feinberg Mindel Brandt & Klein LLP’s, Probate Department. Mr. Klein graduated from UCLA and UCLA Law School. He worked as a trust administrator and has practiced law in Los Angeles County for over 40 years, including 35 years in Family Law. Mr. Klein has lectured, written and been a frequent panelist for Continuing Education of the Bar and most major local bar associations, primarily on probate/family law cross-over issues, on which he is an acknowledged authority.