The Ultimate Domestic Partner Trust— The Estate Plan’s Partner AB-SECURE Trust By The Law Offices of Jeffrey G. Marsocci, PLLC Copyright 2007, Jeffrey G. Marsocci Published by Domestic Partner Publishing, LLC Please Note As with any product, it is important to be clear about the intended purpose and use of the product to avoid any misunderstandings. Specifically with writings about legal issues, it is noted that these materials are not a substitute for competent legal counsel. The contents of this report are instead written to provide information about common estate planning problems faced by domestic partners, and it is designed for general educational purposes only. The contents of this report are not to be construed as legal advice, and no attorney-client privilege exists between the reader and the author and/or publisher. In addition, laws change frequently, and therefore you are also urged to speak with an attorney about changes in the law which may affect you. Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of avoiding tax related penalties or promoting, marketing, or recommending to another party any tax related matter addressed herein. For specific legal advice, you are urged to contact an attorney in your state or jurisdiction. About the Author Jeffrey G. Marsocci was born in Fort Worth, Texas but was raised in Lincoln, Rhode Island and graduated from Mount Saint Charles Academy High School. He graduated from Hofstra University with an undergraduate degree in Business, and two years later earned his law degree from the same school. He also earned a Certificate Degree in Non- Profit Management from Duke University in 2004, and has earned his Legal Master of Estate Preservation designation from the Abts Institute for Estate Preservation. Mr. Marsocci also serves as a member of the Legal Council for The Estate Plan, a nationally recognized estate preservation company headed by Henry Abts, trust guru and author of The Living Trust. He is also a founding member of The National Institute for Domestic Partner Estate Planning and participates in the approval and certification process for new attorneys and other advisors seeking membership. Jeff has been practicing law in his own firm in Raleigh since 1996, and his practice focuses on the areas of Wills, Trusts and Life & Estate Planning with a concentration in assisting domestic partners and other unmarried couples. He is also the founder and manager of Partners Practice Development Consulting, LLC, a consulting and publishing firm dedicated to helping domestic partners with their unique life and estate planning goals in North Carolina, and by assisting competent and experienced professionals do the same. Mr. Marsocci can be reached at 919-844-7993, or you can visit the firm on the web at www.livingtrustlawfirm.com. The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust As a life and estate planning attorney, I am committed to providing the best possible documents to my clients. In furthering this goal, my firm has developed top of the line revocable living trusts, Wills, powers of attorney and other documents. We review these documents annually, or more frequently if there are relevant changes in the law. It is only with a lot of painstaking work, editing, re-writing and research that we came up with our standard documents. In the years I have been helping clients with their estate planning needs, I found more and more that domestic partners and other members of the LGBT community were being ignored, and hence there were no or few estate planning documents specifically designed to help them. And more than anyone else, they needed the assistance of knowledgeable attorneys to help them. I don’t know why domestic partners were being ignored, but I have a few suspicions. First, committed domestic partners are not usually vocal when it comes to estate planning issues. As strange as it sounds with all of the political press and the “gay agenda” we keep hearing about, most domestic partners want to work hard, live their lives by the rules, and provide for their partner if anything happens to them. Because there is no public outcry for estate planning help from these domestic partners, a lot of attorneys don’t see the huge need to help them. Second, because of the same political press and mischaracterizations of the LGBT community, there are a lot of attorneys and advisors who are scared to help domestic partners, or at the least even if they do provide some assistance, they are not shouting from the rooftops that they can help. This is probably done out of a fear that they may lose all of their other clients if they advertised that they helped “advance the gay agenda” by providing professional services to domestic partners. I have found this to be largely false, and if there are potential clients who would boycott my services simply because I helped gay couples plan their estates, then I don’t want them as clients anyway. Finally, the most probable reason there are not a lot of attorneys putting themselves front and center to help domestic partners is because they don’t have the necessary estate planning knowledge or ability to help, and they don’t see enough financial advantage in getting their documents and practices up to speed to do so. Over the years, I never did a cost-benefit analysis to see if I wanted to help certain estate planning clients—I only determined long ago that I wanted my legal practice to be in the area of estate planning, and I wanted all of the knowledge I could to help no matter the situation. Seeing committed domestic partners unable to easily find the professional and legal help they need was extremely disappointing. Frankly, it really ticked me off. This desire to help lead me to eventually write and publish Estate Planning for Domestic Partners, a book on basic, intermediate and some advanced techniques to help domestic partners in Page 1 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust planning their lives and estates. (Available through www.amazon.com and available for download at www.estateplanningfordomesticpartners.com.) Parallel with my drive to spread the word about domestic partner estate planning was finding the best way to provide quality estate planning documents for domestic partners, especially through the best revocable living trust we could create. With a giant overhaul of our standard married couple revocable living trust, we were able to provide many of the same benefits to domestic partners that married couples enjoy. With the creation of a new trust, we were also able to assist domestic partners gain some of the estate tax breaks that married couples have. At least in North Carolina. When I started writing Estate Planning for Domestic Partners, I realized that domestic partners needed to have more than a recitation of the problems but they also needed a national solution. Domestic Partners needed a revocable living trust and accompanying documents that would be applicable in all fifty states. I had already been working with a company called The Estate Plan based in Reno, Nevada that provides some of the best estate planning documents available, including revocable living trusts. Over the years, I had lectured at their annual Advanced Institute on domestic partner estate planning issues, and in 2006 I received the Legal Master of Estate Preservation designation from the Abts Institute for Estate Preservation. The company’s founder and author of The Living Trust, Henry W. Abts III, had already been helping domestic partners through some of their standard trust documents. It made sense to work with The Estate Plan to create the best domestic partner revocable living trust and accompanying documents to have them available nationally. With the Partner AB-SECURE Trust, we succeeded. This report has been created to inform you about the Partner AB-SECURE Trust by reviewing domestic partner goals and the problems of probate, analyzing the components of a good domestic partner estate plan, and examining the benefits of the Partner ABSECURE Trust. As an additional feature, we have also included an appendix on the history of The Estate Plan written by Henry W. Abts III. It is my sincerest hope that after reviewing this report that domestic partners will realize that there is estate planning help out there. Just because the law does not favor you and your partner does not mean that there are not ways to use the law to your own advantage. Page 2 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust Section I: Typical Domestic Partner Estate Planning Goals and the dangers of probate As I mentioned previously, many domestic partners have some of the same goals. While each case is different, we have found that the three main domestic partner estate planning goals are: • Combine all of the couple’s assets so they become the assets of one family unit • Empower both partners to make medical and financial decisions for the other in case of an emergency • Make sure that after one partner passes on that the surviving partner is cared for during their lifetime, and thereafter that the funds provide for friends, family members and/or charities Often the goals of domestic partners are related to attaining the same rights married couples have and take for granted. For example, domestic partners believe a husband and wife can legally make healthcare and financial decisions for the other. Domestic partners believe a husband and wife will automatically inherit everything from each other. And domestic partners believe a husband and wife can combine all of their property so they own everything together. The fact is these are only partially true when a couple marries. Married couples who have been around for a while will tell you, “try to refinance a mortgage and sign your spouse’s name.” Attorneys will tell you that without estate planning documents, a wife may or may not inherit everything from her husband depending on state law. (In my own home state of North Carolina, spouses do not automatically inherit everything from each other.) Nonetheless, these are the perceived benefits of marriage that domestic partners want to duplicate. Combining property as one family unit: Domestic partners are not allowed to marry in most states, and in trying to protect each other and more firmly become one family unit they want to bring everything under one roof. Partners often want to confirm their relationship by making “what is mine is yours, and what is yours is mine.” However, there is one huge bump in the road in the form of gift taxes. This tax is not widely known in the general public but is a constant irritant in the estate and tax planning communities. In short, the federal gift tax prevents people from giving more than $12,000 in any given year to an individual. While you can give away $12,000 gifts to many different individuals, anything more than $12,000 to the same person triggers the federal tax. This becomes a huge problem when partners want to combine everything since, unless it is done correctly, the IRS would probably state that each of you gave a gift of one-half of your assets to the other. For more information and examples on the tax and how it works, please read Estate Planning for Domestic Partners (Available at www.amazon.com or also in electronic format at www.estateplanningfordomesticpartners.com). Page 3 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust Empowering both partners to make medical and financial decisions for the other. One of the biggest life planning concerns is making sure that both partners are empowered to make medical and financial decisions for the other if one partner becomes ill. The LGBT community has hundreds of stories of partners who were together for decades being locked out of the hospital room by family members, even though the family members may have been absent from their lives for years. This is an all too common occurrence which is easily handled by properly drafted and legally executed healthcare powers of attorney. In addition, a properly drafted and legally executed financial power of attorney can make sure that all of the sick partner’s financial concerns are handled by their partner and not the “next of kin.” Emphasis on “properly drafted” and “legally executed.” However this is not always done, and there are far too many instances in the LGBT community where these documents were not accepted. This is not necessarily because the hospital or bank did not want to accept the power of attorney documents but because when partners tried to do it themselves or used an inexperienced attorney and the documents were defective. Inheritance of assets for partner and then other chosen beneficiaries. As with any committed couple, domestic partner couples usually wish to ensure that their assets go first to their partner, or at the least they are available for their partner during their lifetime. After that, they wish for their assets to go to other beneficiaries of their own choosing rather than automatically going to other family members. In a case where the partners have children together, the beneficiaries are often the children. In other cases, the partners may wish to have certain assets go half to friends or family members on one side and half to the other. Regardless of the wishes, they need to be in writing. However, the method of transferring assets may end up with significant, unintended problems, particularly if a Last Will and Testament is used rather than a revocable living trust. With a Will, there is guaranteed probate of the deceased partner’s assets which translates into loss of privacy, higher expenses in terms of money and/or time, a higher risk of the plans being contested, and longer delays in the partner having unrestricted access to the partner’s assets. These three goals are often sought by domestic partners, but many attorneys inexperienced in working with domestic partners will suggest Wills rather than a revocable living trust. Unfortunately, this exposes the estates of both partners to probate, which has some severe consequences. There are four major drawbacks to probate: • High costs • Delays • Contestability • Loss of Privacy Page 4 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust The first major problem with domestic partners subjecting their estates to probate is the cost involved. Depending on your state, the probate fees themselves may be high. These “fees” are the direct costs charged by a court to take your assets through probate. By far, the more common costs associated with probate are the legal fees attorneys charge to handle the paperwork. According to an AARP study, the national range of total average costs lies between four and ten percent (4-10%) of the assets going through probate. For an estate of even $500,000, that would average out to between $20,000 and $50,000 in costs just to get assets to your partner. And it is not at all necessary. As mentioned previously, using a joint revocable living trust with a domestic partnership property agreement can eliminate probate costs for all of the assets within the trust. And all of these benefits typically cost well under $5,000 (often under $3,500) for a complete set of life and estate planning documents. The second problem with probate is the long delays in settling legal matters, and then transferring everything to the surviving partner. Depending on the state the partners reside in, delays are typically six months to a year and a half before the estate is closed. During that time, access to assets in the estate may be curtailed or even forbidden. For a surviving partner, these delays can cost dearly. What if the surviving partner needed to access bank accounts to pay the mortgage? What if that mortgage could not be refinanced until probate proceedings were completed? What if the property is in the process of being sold, and the untimely death of the partner stopped the sale, needlessly cutting off vital funds for the survivor? Clearly, keeping assets from the bureaucracy and time delays of probate is desirable. Probate also opens possibilities of people stepping forward to contest the wishes of the partners. Because same-gender couples are far from universally accepted, there are decreased odds of the surviving partner receiving everything without a murmur of protest from at least someone. The odds of someone being unsatisfied with the partners’ estate planning arrangements moving to actually brining a court action increases exponentially with the size of the estate. This third detriment to probate, even if unsuccessful, also adds to the delays in settling the estate and giving access to the partner. The estate not settling for a year or more is much more possible if there are court proceedings in a Will contest. Even more unjust, it is entirely possible, depending on the state the partners reside in, that a court may order the estate to pay for the attorney fees of both sides. Finally, and most importantly for some partners, probate destroys the privacy of the partners. Depending on state law, because probate is a judicial matter, the proceedings are open to the public. In North Carolina, each bank account, account number, date of death balance, and who the account goes to is information available to the public. All property, values, and addresses are there for anyone to see. In addition, using a Last Will and Page 5 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust Testament means that the Will itself is open to public inspection, so the world can see exactly what the surviving partner is getting. While costs and delays are a substantial estate planning concerns for many partners, the complete loss of privacy tends to be the top detriment. In the years that I have been in my estate planning practice, domestic partners who were not convinced that they wanted a revocable living trust when they came to my office were often convinced when hearing that all of their plans would be open to public scrutiny Using a Last Will and Testament may eventually get most of a deceased partner’s assets to the survivor, but there are severe drawbacks to the probate process. By far, using a revocable living trust is a more effective way for domestic partners to plan their estates. Section II: Components of a Good Domestic Partner Estate Plan While a revocable living trust and accompanying documents can help domestic partners effectively plan their estates, not all trusts are the same. In fact, a poorly written trust can cause just as many problems as probate, if not more. The components of a good domestic partner estate plan are: • A revocable living trust • A pour-over Will • A healthcare power of attorney • A durable general power of attorney • A living will • A domestic partnership property agreement • A mechanism for preserving both partner’s lifetime estate tax credits We will address these items one at a time, but there will be a concentration on the revocable living trust. The Revocable Living Trust The Revocable Living Trust is slowly growing in popularity among domestic partners because it is a single vehicle for distributing property according to the wishes of both partners, it is private, and it is much harder to contest than a Will. These versatile trusts are created during life and upon death distribute property much the same way probate does through a Will, but it does so without probate court supervision or interference. Instead, a less expensive, less time-consuming process is used, and your successor trustee signs title to the assets over to your chosen beneficiaries. Taking an estate through probate can be a time-consuming, expensive and frustrating process. It seems that the only people that come out ahead by taking an estate through probate is the law firm handling the paperwork. However, a probate court only takes Page 6 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust control of and examines property titled in the deceased person’s name. If everything is titled in the name of a revocable living trust rather than the deceased person’s name, then the court does not have to be involved (as long as the bills are paid and no one contests the estate plan). The Living Trust document then tells people how the estate should be distributed, outside of court, and with as little fuss as possible. Benefits of using a Revocable Living Trust include: • Distributes your estate the way you want it distributed • More difficult to contest than a Will • Privacy of the Life and Estate Plan • Trustee cares for property during incapacity • Helps secure property until heirs reach a proper age The main reason for having trust is so that your wishes regarding your property are followed. Without an estate plan of any kind, property is distributed according to the government’s wishes and not according to what the deceased person wanted if they had bothered to put it in writing. In North Carolina, if a single person dies without children, everything goes to their parents equally. If they have a child or children, then everything goes equally to those children when they are at least 18. Nowhere in the statutes is there any provision for domestic partners (or even unmarried heterosexual partners) to receive property upon death. By putting your wishes in writing in the form of a revocable living trust, you and your partner can transfer ownership of property into the trust and then the trust dictates how your property is distributed in the event of a death. There is no court involvement for distributing property in a revocable living trust as long as all debts and taxes are paid and no one contests the plan. Privacy is a benefit often cited by Revocable Living Trust users, attorneys and financial planners. When a person passes on, his or her Will becomes a public document accessible to anyone. Any salesman may go into the probate court, see what the estate was worth and which heirs received an inheritance, and begin soliciting them. Their names and addresses are also on file as part of the probate paperwork. A Living Trust need never be seen by anyone other than the trustee(s), or by a judge if the Living Trust is contested. Even the beneficiaries are not allowed to see the Trust if you forbid it. In addition, Wills are statistically far more likely to be successfully challenged than Living Trusts. The reason that Revocable Living Trusts are harder to contest than a Will is that Wills become active when a person dies while a Living Trust is active from the moment the trust is signed until the death of the person owning the trust and beyond. To contest a Will because the person was not “in their right mind,” it would have to be proven that the person was not mentally competent on the day the Will was signed. To contest a Revocable Living Trust because a person was not “in their right mind,” it would have to be proven that the person was not mentally competent on the day the Trust was signed, on each day an asset was transferred into the trust, on each day money is Page 7 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust withdrawn or deposited into an account owned by the trust, etc. Proving someone was not in their right mind for each and every transaction over a period of years is close to impossible unless they actually were mentally incompetent. Please note that avoiding probate does not mean that the possessions are immune from estate or inheritance taxes. Avoiding probate means eliminating the costs and expenses of a court proceeding, and it does not mean avoiding taxes. A Living Trust is also a mechanism for caring for you, the trustee and initial beneficiary, during life if you become incapacitated. If you are determined incompetent by a physician to handle your business and personal affairs, another trustee you previously designated can step in and manage your assets. In the case of domestic partners, the other partner can be automatically authorized to handle these matters. A Last Will and Testament will only allow another to handle your affairs after death. Having a trustee step in to manage these assets is much easier, more efficient, and far less expensive than a competency hearing and continued court supervision. A Revocable Living Trust can also restrict property going to younger beneficiaries until they reach a mature age that you determine beforehand. Parents are often concerned about children receiving a large inheritance. Frequently, domestic partners leave property to nieces or nephews, and they are also concerned about this. Imagine what an 18 year old would do with $200,000. Two words that frequently come up are “Porsche” and “Vegas.” Property can be restricted until an appropriate age, and the trustee you appointed can use their best judgment to manage the trust until then. There are many different ways to restrict money going to beneficiaries, and popular arrangements include giving a third at age 25, a third at age 30, and the remainder at age 35. However, limitless arrangements exist to restrict property to beneficiaries. After all, it is your money and you should be allowed to create the distribution rules for the property after you have passed on. The most notable drawback is that a Revocable Living Trust life and estate plan costs more to establish than a plan by a Will. The cost for an estate plan using Wills for a couple is typically $750 to $1,200 depending on the complexity. The cost to establish an estate plan using a Revocable Living Trust for a couple is typically between $3,000 and $5,000 depending on the complexity of the plan. However, the cost of probate is typically between 4% and 10% of assets in the estate. For a million dollar estate, this would mean between $40,000 and $100,000 just to handle the probate of the estate. In general, a Revocable Living Trust is recommended over a Will because the significant long-term savings and added benefits far outweigh the added short-term costs. If a revocable living trust does not address at least these provisions, then it is likely an inferior document that needs to be changed to fully address the goals of you and your partner. Page 8 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust Pour-Over Will A Pour-Over Will is actually a very simple document since it does not contain any of the terms and conditions that are already handled in the revocable living trust. All of the terms about who gets what and when are not there. All a Pour-Over Will does is send the property to the trust. All of the age restrictions and limitations are not included in the Will since the trust takes care of that. None of the terms about who gets personal property are handled in the Pour-Over Will because that is handled in the trust. Furthermore, we frequently advise clients that if they have a Pour-Over Will that does address these issues, then they should have their whole plan reviewed. It is possible that their documents have major deficiencies if the attorney who drafted the Pour-Over Will in this manner eliminated the partners’ privacy in this manner since the Will would be filed upon death, all of the terms relating to who receives property would be in the Pour- Over Will, and the Pour-Over Will is now available to the public. There are a few provisions that are typically in a Pour-Over Will, other than that probate assets should be turned over to the trustee of the trust. The first is the appointment of executors to handle any probate work. The fact is that there is probably little for the executor to do since most (if not all) assets are in the trust. The executor is then merely named in case any controversy does arise. It is also typical that the person named as executor is also the same person named as the successor trustee just to avoid any conflicts between an executor handling a few probate matters and the trustee waiting for the probate process to close. The next provisions typically found in a Pour-Over Will are the guardians nominated to care for any minor children or any disabled adult children who require a guardian. While many trust “packages” also come with a separate Nomination of Guardian form, it is still typical to name guardians in a Pour-Over Will. In some cases, domestic partners with children will name the same people as guardians and as trustees, but this is never required. In fact, many people are more comfortable having one person oversee the assets while another person oversees the children. The last provisions in a Pour-Over Will we will mention are related to burial or cremation wishes. Sometimes, these wishes are as simple as declaring that a person’s body will be cremated and not buried, or vice versa. I have also seen some elaborate wishes spelled out ranging from the music to be played at the funeral service and the color of the underwear a person wished to be buried in. In some cases, including with The Estate Plan’s trusts, these wishes are omitted from the Will and instead there are forms provided with the revocable living trust binder where these wishes can be separately written out. While critical to ensure that assets that end up in probate, intentionally or unintentionally, get to the right place, the Pour-Over Will only has those few provisions and the language absolutely necessary to qualify the document as a Last Will and Testament. All of the real action takes place within the revocable living trust. Page 9 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust Healthcare Power of Attorney One of the greatest legal concerns facing domestic partners is that they are not automatically allowed to make healthcare decisions for their partners if they are incapacitated and in a hospital. Doctors frequently ignore pleas for information about their partner, and the decisions are automatically handed over to the sick person’s family members, who may be the last people they would want making medical decisions for them. It is not the doctor’s fault-they are legally obligated to withhold information to non-family members and to go to the family members for medical decisions unless the partner is legally empowered to make these decisions or receive information. A Healthcare Power of Attorney legally empowers a person to make healthcare decisions and receive medical information. Doctors are legally obligated to follow the wishes of the healthcare agent to the same extent they must follow instructions from the patient. Legally, the family member’s wishes are irrelevant when an order comes from the healthcare agent, and if a doctor follows the wishes of a family member instead of the healthcare agent, then the doctor can be compelled to follow the partner’s wishes by a court or face jail time for contempt of court. Another document vital to life planning is a Living Will. A Living Will orders a doctor to use or not to use extreme life-saving measures, such as life-support, if you are in an irrecoverable coma or in a “persistent vegetative state.” A Living Will is sometimes mistakenly called a Do Not Resuscitate Order (DNR) because most people use this document to stop extreme life-saving measures. However, a true DNR is an order from a physician for other medical personnel (such as EMTs) to withhold life support. In a typical Living Will, doctors are ordered either to withhold life support or are requested to administer life support. Doctors are also ordered to withhold artificial nutrition or are ordered to give nutrition. Because the Living Will was drafted, signed and notarized while the patient was conscious and of sound mind, doctors must follow the directives of a Living Will document. This not only allows you to make these important decisions ahead of time, but it also removes the burden of these difficult decisions from loved ones. Our office no longer drafts Wills or Living Trusts without including these documents free of charge. If a client does not wish to have a Living Will, it is still the same price for a Will or Living Trust, and they would save no money by leaving out these documents. Healthcare Power of Attorney documents compliment Living Wills by making sure your healthcare decisions are made by specific people you choose, in a set order, so doctors have people to turn to for decisions, and the last decision of withholding or giving life support is made in advance. It is important to note that not all states have separate, stand alone living wills. A few states, including New York, allow wishes regarding life support and artificial nutrition to be spelled out, but a specific agent appointed by you must make the ultimate decision. Page 10 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust The Healthcare Power of Attorney and Living Will are necessary to complete any life and estate plan, and everyone should give due consideration to having these documents drafted and executed along with their Living Trust. Domestic Partnership Property Agreement A critical part of having the right domestic partner revocable living trust is having a domestic partner property agreement that works with the trust. By having this agreement in place, domestic partners are able to combine their assets under one trust, but at the same time the agreement keeps the assets separate for tax purposes. The Domestic Partner AB-SECURE Trust through The Estate Plan integrates this essential agreement directly into the trust paperwork. Most committed couples want to bring everything that they have together so that “what’s yours is mine and what’s mine is yours.” However, directly mixing assets is a sure way to violate the gift tax rules. However, a properly drafted joint revocable living trust in tandem with a domestic partnership property agreement can bring both partners’ assets into the trust without violating the gift tax rules. Since both partners are trustees of the trust and both are beneficiaries of the trust, they can, with a few limitations, both utilize each other’s assets. As trustees, both partners are able to control everything in the trust. The assets will be listed in the domestic partnership property agreement depending on which partner contributed an asset. Both partners can take out money and spend it, buy and sell assets, make investment decisions for the other, and otherwise do anything that their partner could do if it were still in their separate name with these exceptions and clarifications: 1) whenever one partner takes an asset listed as the other partner’s property in the domestic partnership property agreement, they are deemed to have used it in their capacity as a trustee 2) it is OK to utilize their partner’s assets for the good of the household, the partnership, or their partner individually 3) it is not OK to take money from one partner’s account and put it into the other partner’s account without triggering the gift tax It is important that a domestic partnership property agreement be incorporated into the overall estate plan to work with a joint revocable living trust for domestic partners and not just be an independent document. To leave no room for error, The Estate Plan incorporates this agreement directly into a Partner AB-SECURE Trust. Page 11 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust Other provisions In addition to keeping property accounted for separately within the joint revocable living trust, the domestic partnership property agreement also assists in the orderly dissolution of the trust if the partnership breaks up. In other words, it acts as a sort of “pre-nup” (premarital agreement) for domestic partners. The standard dissolution terms are simple: • Whatever the first partner has listed as separate property is theirs to take • Whatever the second partner has listed as separate property is theirs to take • All jointly owned property is divided equally among the partners The standard division of assets is keep separate property separate and divides joint property down the middle, this does not have to be the case. The agreement can be amended to provide a different form of asset division. However, it is important to keep in mind that any unequal division may incur gift taxes if the “unequal” division exceeds $12,000 in the year of division. While many domestic partner breakups can be handled amicably, this is not always the case. There are enough emotional difficulties associated with committed partners going their separate ways, so having a guideline for dividing the property fairly and equitably can reduce the amount of stress (not to mention legal fees) in seeing the division made final. The SECURE Trust There is within the law a special tax trust that married couples can take advantage of called a credit shelter trust. When the second spouse passes on, there is a way to “double up” the tax credits. When married couples uses a credit shelter trust (in 2011 and beyond), they can now pass up to $2 million without estate taxes instead of just $1 million. While the special credit shelter trust is only available to married couples, our firm in conjunction with The Estate Plan has developed a new trust that can give the same estate tax breaks for only a few more restrictions. The SECURE (Special Estate Credit Retention) part of the Domestic Partner AB-SECURE Trust, can hold the assets of the first partner to pass on, have them available for the surviving partner through an independent trustee, and then when the second partner passes on, both estates will have had their estate tax credits applied. (Please keep in mind we are only discussing federal estate taxes. State estate taxes vary, and if you have specific questions you should contact a tax professional in your area.) The best way to explain how this works is to use an example: Page 12 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust Example George and Jeb are partners and have accumulated quite a bit in assets. They naturally want to provide for each other, and then leave their assets to Jeb’s nieces Barbara and Jenna. Together they have a joint revocable living trust, and for the sake of keeping this simple, let’s assume that George has $1 million in oil company stock as his separately accounted for property, and Jeb has $1 million in separately account property mixed among real estate holding, voting machine stocks and cash. If George passes on leaving everything to Neil without a SAFE Trust in 2011, and then Neil passes on a year later in 2012, here is how the estate taxes would look: 1) George leaves his $1 million to Neil; no federal estate taxes 2) Neil leaves a $2 million estate, resulting in $345,800 in estate taxes, 3) The $1,654,200 remaining goes to Jenna and Barbara. Now let’s use the same facts but having George and Neil utilize a Secure trust instead: 1) George leaves his $1 million to Jeb through their joint Domestic Partner ABSECURE Trust, and Neil allocates George’s $1 million to the “Secure” portion of the trust so an independent trustee can manage the assets for Neil for the remainder of his life and then pass the remainder onto Jenna and Barbara when Neil passes on. There are no estate taxes. 2) Neil passes on leaving his own $1 million estate. Neil technically never has control over George’s SAFE Trust assets, so they are not counted as part of his taxable estate. 3) Neil’s $1 million goes to Jenna and Barbara with no federal estate taxes. George’s Secure Trust $1 million in assets go to Jenna and Barbara with no federal estate taxes. These estates through use of a SAFE Trust managed to avoid $345,800 in estate taxes. Restrictions on Credit Shelter Trust vs. Secure Trust There are restrictions on a credit shelter trust for married couples. The surviving spouse has some access to the trust, usually in conjunction with an independent trustee, but there are some restrictions. The most access a surviving spouse can have is: • The surviving spouse can receive all of the income generated by the trust • The surviving spouse can use any property in the trust, such as house or vehicles • If the surviving spouse is a trustee, then they can be paid 5% or $5,000 each year, whichever is greater, for being the trustee • If the surviving spouse is a trustee, then they can buy, sell and exchange property within the trust Page 13 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust As long as these restrictions or greater ones are imposed on the surviving spouse, up to the full $1 million in estate tax credits (post-2011) can be applied to the trust assets when the first spouse passes on. In order for domestic partners to get the same estate tax breaks with a Secure Trust, there are some greater restrictions needed. • The surviving partner can receive all of the income generated by the trust • The surviving partner can use property in the trust, such as houses or vehicles • The surviving partner can not be a trustee, and therefore an independent trustee must make decisions regarding whether or not to distribute assets to the surviving partner While this may seem like a lot to give up in order to get the estate tax credits, in strict legal terms it is only control that is being given up. It is recommended that a close friend or family member who is not going to eventually inherit property from the SECURE Trust be the trustee. In practical terms, the trustee will probably give them anything they wanted. But there are also some practical terms written into the trust which will make things easier for the surviving partner. It is specifically recommended that the trustee work with the surviving partner to purchase real estate and other hard assets the partner can use rather than putting money into securities and other assets. This may involve the Secure Trust portion purchasing the surviving partner’s interest in the family home. Now the surviving partner can live in the house, and they can invest the proceeds in whatever they wish. It makes life easier for the surviving partner because they do not need to go to the trustee in order to get money. Exclusivity of SECURE Trust In addition to providing potential estate tax savings in the hundreds of thousands of dollars for domestic partners, these tax saving features are also available in a flexible manner. The default set up of the Domestic Partner AB-SECURE Trust allocates everything to the surviving partner through the “B” part of the trust, which is fully accessible to the surviving partner but has no future estate tax savings. The surviving partner has to sign off on property going to the Secure Trust using something called a “disclaimer.” (This form is provided with all Domestic Partner AB-SECURE Trusts). The Secure Trust was developed by The Law Offices of Jeffrey G. Marsocci, PLLC, and remains exclusive through our firm and through The Estate Plan only. If you and your partner have sufficient assets that estate tax planning is necessary, then please contact our firm at 919-844-7993. Other professionals who understand domestic partner planning can be reached through The National Institute for Domestic Partner Estate Planning at www.NIDPestateplanning.com. If you prefer, you can also contact The Estate Plan directly at 1-800-350-1234. Page 14 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Ultimate Domestic Partner Trust-The Estate Plan’s Partner AB-SECURE Trust Summary The right revocable living trust can provide the means for domestic partners to bring their property together and manage it as one family unit, upon death distribute property to the people you chose, and provide age and other restrictions. Properly drafted, executed and funded revocable living trusts also can avoid all of the negatives of probate, including high costs, long settlement times, susceptibility to challenges, and loss of privacy. By using the right revocable living trust as the base of their life and estate planning, domestic partners can achieve many of their goals—and all of these components are already integrated into The Estate Plan’s Partner AB-SECURE Trust. For more information on the Partner AB-SECURE Trust, you can contact The Law Offices of Jeffrey G. Marsocci, PLLC at 919-844-7993. To find an attorney or advisor in with access to the Partner AB-SECURE Trust in your area, please contact The Estate Plan at 1-800-292-0223. Page 15 For more information on Domestic Partner Estate Planning, please see Estate Planning for Domestic Partners, available at www.estateplanningfordomesticpartners.com The Living Trust History “I am often asked about my background and the history of The Estate Plan. Let me address both questions by explaining that The Estate Plan was born of necessity.” Henry W. Abts III Chairman For further information, please call (800) 350-1234 The Estate Plan Story My first experience with the probate process was enough to last a lifetime. My parents had decided to sell the family home and move into smaller accommodations. Unfortunately for our family, we never expected, or planned for what was to happen next. Just a week before the close of escrow, my father died suddenly of a massive stroke. No forewarning, no advanced notice. The sale of my parents’ home was immediately suspended and their estate, that they had worked a lifetime to build, was now ironically beyond my mother’s reach. It had become entangled in the laborious grind of the probate process. I spent the next several months dealing with an outdated bureaucracy, hopelessly trying to keep the sale of my parents’ home from collapsing. The stress of these events began to take its toll on my mother and I was forced to place her in the hospital, while I alone, buried my father. The feelings of hopelessness, frustration and anguish were indelibly etched upon my mind. I resolved that no one should suffer the agony of my experience. While pursuing my career in personal estate and financial planning, I discovered the power of the Living Trust as an alternative estate settlement option. Within the provisions of a Living Trust were the keys to avoiding probate, easing the transition of a loved one’s passing, and preserving more of the family’s estate. I took every opportunity to advise and encourage all my clients to adopt a well- structured Living Trust, instead of relying upon wills and the probate process, which most people falsely assumed were protecting their loved ones’ futures. Three of my clients, each a president of a medium size corporation, had their corporate attorneys draft a Living Trust. These attorneys were personal friends and worked for their clients for many years, but because of the attorneys’ unfamiliarity with estate planning law, the drafted documents left their clients worse off than having no Trust at all. Because of their inadequately worded provisions, these documents virtually guaranteed a long, drawn out court interpretation of their clients’ wishes. Recognizing this problem of finding experienced attorneys who could create a well written Trust, I set out to create a list of qualified professionals to whom I could confidently refer my clients. Even with these recommended attorneys, however, I discovered that at times clients neither understood their Living Trust, nor what their attorney said concerning it. Frequently, a client would leave their attorney’s office with an unfunded Trust or www.theestateplan.com one that didn’t meet their family’s needs. They would be frustrated and confused by the legal language and unable to understand what they had purchased. I took this concern to an outstanding estate planning attorney. Utilizing our years of research, knowledge, and personal experience with thousands of clients I founded The Estate Plan in 1982, to bring the finest Living Trust program within reach of everyone. My legal associate had a brilliant mind and a positive approach to any problem, while I had the ability to take these complex legal solutions and put them into understandable words and illustrations. Our common goal was to understand our clients’ unique situations, and to develop together a comprehensive system to address their needs. The Estate Plan was developed with two primary objectives: First, to educate the public about alternatives to probate; and second, to provide a single, convenient outlet where clients can go to put together their own estate preservation program. As we met with clients, we identified their common problems, and developed working solutions. Each new provision was included in our Trust documents so that future clients would not be subjected to the same problems. The Living Trust document and its supporting elements grew with our expanding client base, resulting in a set of documents designed to cover every contingency, developed from real life experiences. The thoroughness of our program became evident in 1984, while assisting a client to settle her estate. We realized that there was really very little to do. All of the pieces had come together and we settled the estate in less than an hour! Meeting with thousands of clients gave me the opportunity to address their technical questions in terms they could understand. When they asked for written information to send to their parents in Florida or to their children in New York, I began writing my experiences down and eventually published The Living Trust, which went on to become a national best- seller, selling nearly 1,000,000 copies to date. With the publication of The Living Trust our growing client base soon expanded into every state in the nation, as well as Guam, the Virgin Islands, and Puerto Rico. The Estate Plan is the only nationwide Living Trust company whose Trust documents are valid in all fifty states. Our clients enjoy the confidence and peace of mind that comes from knowing that The Estate Plan has produced over 60,000 documents nationwide. Our toll- free 800 number gives our clients access to our legal and financial planning affiliates throughout the country who will gladly provide answers to their important estate preservation questions. Our estate preservation system provides a comprehensive program of products and services which universally eliminate the need for probate, and unnecessary federal estate taxation, while giving our clients maximum control over their estate. We know our program works. We live with it daily, and it is the most gratifying work we have ever done. Unfortunately, I have assisted through the endless maze of probate, those who did not plan well in advance — each with the same result of agony and frustration. The surviving spouse or children going through probate tend to suspend their lives, career goals, and major decisions until the probate process is completed — which can often take over a year. The survivor is trapped; unable to plan or look forward to a better future. In contrast, a survivor with The Estate Plan Comprehensive Estate Preservation Program can settle their estate, generally within an hour, and then move forward with their life without worry. Usually, within a few months, our client’s lives are once again on track. I feel this benefit far outweighs any other advantage of The Estate Plan Comprehensive Estate Preservation Program. When people have a choice, I wonder . . . Why would anyone choose to put their loved ones through the unnecessary turmoil of probate? www.theestateplan.com