By Betsy Poggi, Esq.

A will may not be necessary, depending on one’s assets and how they are titled, but there is no question that without one, a surviving partner of an unmarried couple will not inherit in Pennsylvania under the Commonwealth’s current intestate laws, nor will he or she be the first in line to be appointed administrator of the estate.

You can still inherit those assets where he or she named you as beneficiary (on a bank or brokerage account, retirement account, or insurance product, for example) or through joint ownership with rights of survivorship (on a bank or brokerage account or real estate, for example).

Even if your partner does not own any assets in his or her name alone, it may still be important to have a will because he or she may want to appoint you and/or others as beneficiary of his or her estate just in case something is payable to the estate (e.g., a refund check, beneficiary of a family member’s estate, that long lost stock certificate Grandma gave on his or her 18th birthday) and appoint a person to be responsible for his or her estate (i.e. executor). Moreover, what if you predecease your partner or you die together?

Joint ownership and beneficiary designations aside, a will is important in the event minor children are involved. In the event of a parent’s death, the remaining legal or natural guardian (natural or adoptive parent) will continue as the parent of the minor child, but should any issues arise with that person (he or she is incapacitated or also no longer living, for example), the courts will look to the intentions in a will of the deceased parent(s) when appointing the guardian of the person for the minor child. In an unmarried couple circumstance, this may be reason alone to have a will because the courts are likely to look to next of kin first before nonfamily members. For this reason, second parent adoptions are becoming more popular in Pennsylvania among gay couples.

There is certainly no downside to having a will (assuming it is reviewed over time and reflects one’s current intentions) and it may be necessary should a partner want to name you as a beneficiary of his or her estate, executor, and guardian of any minor children.

The current gift tax situation, which is of interest to any individual wishing to make transfers this year to avoid future estate tax, is particularly important to gay, lesbian and other unmarried couples and individuals who (under current law) lack the ability to use a marital deduction to keep the couple’s net worth intact for the survivor.

2012 is a very important year. This may be the last clear chance to use the temporarily increased exemption from gift tax (currently up to $5,120,000 or over $10 million for a couple). Some types of gifts may take several months to implement. Accordingly, it is not too soon to act; for some it could soon be too late to get all steps, including appraisals, complete before year-end.

Alert: Learn how to take advantage of 2012 Gift Tax Exemption while there is still time.

 

More Information: Techniques and factors that you may want to consider.

By: Mariah L. Passarelli, Esq.

In keeping with our goal of addressing topics that are important to all nontraditional couples (not just same-sex couples), today’s article addresses a common pitfall that has been hiding in plain sight for years: the Multiple Party Accounts Act (“MPAA”), 20 Pa.C.S.A. § 6301, et seq. The MPAA has been on the books in Pennsylvania for a long time – since 1976 – but has been the subject of surprisingly little litigation and almost no public discussion, yet it affects nearly everyone and can have an enormous financial impact.

Here is how it works.

The MPAA is derived from the Uniform Probate Code and is really a part of the Pennsylvania statutes that pertain to estates and trusts. The MPAA applies to all bank accounts (checking accounts, savings accounts, trusts, certificates of deposit, etc.) that are held jointly by two or more unmarried persons for any reason other than business purposes. This means that, as long as the account is not part of a business venture, the MPAA applies to a joint account between unmarried heterosexual partners, between same sex couples, and between you and your mom. For the sake of this article, we will call the holders of such joint accounts “couples.”

The MPAA impacts couples in two primary ways:

1. it determines what happens to the money in a joint account when one of member of the couple dies
2. it determines what happens to the money in the account if the couple splits up.

In both instances, the effect of the MPAA may surprise you.

To be sure, when you and your partner open a joint bank account, it seems safe to assume that the funds deposited in that account belong to each of you equally – jointly. In fact, Merriam-Webster supports this safe assumption, defining “jointly” as “common to two or more.” This is where the MPAA comes in to turn this everyday notion of “jointly” on its head.

The MPAA basically states that the money in a joint account belongs to the person who put it there – not to the couple equally. That means that if a couple with a joint bank account splits up, unless they can agree otherwise, a court must determine what portion of the funds in the joint account were deposited by each party and distribute the funds accordingly.

The method that the court uses in determining who made the deposits is called tracing and it is nearly impossible to do. Think of your everyday joint checking account. You and your partner’s paychecks get direct-deposited. Your joint bills come out. You buy lunch for yourself. Your partner has a horrible Starbucks habit. You pay your car payments, your collective homeowner’s insurance, go on vacation, buy Christmas gifts, etc. At the end of the month, after money has gone in from both of you, come out for each individual’s personal use, and come out for joint uses, what proportion of the account can be traced to each individual?

Now imagine the nightmare of tracing such funds over 20 years of a couple’s relationship to determine who belongs to what portion of a large investment account. That is precisely what happened in the case Boyle v. King (Allegheny County Court of Common Pleas No. GD 07-021569). There, a lesbian couple split after a 20-year relationship, holding numerous joint business and personal accounts, including a large investment account, and then spent the next five (5) years (and an untold amount of attorney’s fees) litigating in an attempt to sort out the MPAA mess. Not good.

As mentioned above, the MPAA also impacts what happens to the money in a joint account upon the death of one account holder. The Act itself indicates that the money would pass automatically to the surviving account holder based upon a notion called the “Right of Survivorship.” However, a 2008 Commonwealth Court case called In re Estate of Amelia J. Piet has created confusion in this regard. There, the Court ruled that the funds in a joint account did not pass to the surviving account holder because the decedent had executed a will, before making the account joint, which left the money in the account to another person. The Court, in essence, held that the will trumped the MPAA and allowed the portion of the funds in the joint account that was attributable to the decedent to be inherited by her heirs, instead of automatically transferred to the other joint account holder.

What is the lesson in all of this? Keep your money separate or have a written agreement.

The former is easy, if sometimes inconvenient. The latter requires some forethought and planning (and help from an experienced law firm like ours). In order to establish a truly “joint” account where the money is owned equally by both members of a couple, the couple must enter into a separate agreement (such as a cohabitation or domestic partner agreement) stating that the money in that account is to be distributed to them equally in the event of separation and that, to the extent one party contributed more money to the account than the other, it was the over-contributing party’s intent to gift that amount to the other account holder.

Have you had issues in this area?  Do you have a story to tell?  Or do you just want to give your two-cents? Leave a comment.

New IRS guidance for same-sex couples.  Click the link below to read a list of frequently asked questions.

http://www.irs.gov/newsroom/article/0,,id=258326,00.html

ByLauren Sweeney

Currently six states (Connecticut, Iowa, Massachusetts, New Hampshire, New York, Vermont and Maryland as of January 2013) and District of Columbia recognize same sex marriages, but the Federal government does not because DOMA defines the term marriage as a legal union between one man and one woman, codifying the nonrecognition of same sex marriage for federal purposes.  Therefore, for federal income tax purposes, same sex married couples are required to file separate individual income tax returns each with the filing status of “single” or “head of household” even if they can file their state returns with a married status.  This presents several federal income tax issues for married and unmarried same-sex couples some of which are addressed below.

Is filing a tax return as single truthful?
Filing as a single person presents an ethical issue for many same-sex married couples. The federal income tax return requires a signature beneath the declaration “Under penalties of perjury, I declare that I have examined this return and the accompanying schedules and statements, and to the best of my knowledge and belief, that they are true, correct, and complete.”   Many couples have official documents that indicate that they are not, in fact, single.  Lambda Legal recommends that a taxpayer place an asterisk next to the check box on the form and to attach a disclosure that not only eases apprehension about the truthfulness of one’s return, but also may help protect against claims that one disclaimed the legal validity of one’s marriage.  Click here for a link to Lamba Legal’s sample disclosure and their website.

Can one partner claim the other as a dependent?
If one partner is working, and the other partner is staying at home, the stay-at-home partner could qualify as a dependent and the working partner could take an exemption for him/her.  However, to qualify the stay at home partner must:

• Have earned less than $3,700 in gross income or unemployment benefits
• Have received more than half of their support from the working partner in the form of food, shelter, clothing, education, and medical care
• Be a U.S. Citizen

What if a same sex couple owns their own home and both of their names are on the mortgage? 
If both partners contribute to the mortgage payments, the interest tax deduction could be split any way it fits the couple best.

What if the working partner provides health insurance for a stay-at-home partner? If the working partner can provide insurance for the stay-at-home partner through the working partner’s employer’s plan, the insurance is deemed to be an extraneous benefit.  As a result, the stay-at-home partner receiving the health insurance must report the value of the insurance benefits as taxable income on his or her tax return.  Click here for further analysis. 

What if a couple has children together?
If both partners are legal parents (biological or adoptive) of the same child, either of them may claim the child as a dependent – but not both. Claiming a child allows a taxpayer the benefit of filing as “head of household,” which has more tax benefits over filing “single.” If a couple has more than one child together, each partner may be able to file as “head of household” by each claiming one child as a dependent. There are some very specific requirements in order to file as head of household.

 In addition to being unmarried or “considered unmarried” on the last day of the year, a taxpayer must have paid more than half the cost of keeping up a home for the year and had a “qualifying person” living in the home for more than half the year. A “qualifying person” for “Head of Household” status is (1) a taxpayer’s “qualifying child” (2) a taxpayer’s parent who meets the requirements of a “qualifying relative” or (3) A “qualifying relative” that is otherwise related to the taxpayer.  Click here for IRS definitions of qualifying child and qualifying relative.

What about state income tax returns?
All six states and DC that recognize same-sex marriages allow taxpayers the status of married filing jointly.

The following states recognize domestic partnerships and allow joint filing:  California (file as Married/Registered Domestic Partners filing jointly), Oregon (Registered Domestic Partner filing status), District of Columbia (file as Married/Registered Domestic Partners filing jointly). 

The following states recognize civil unions and allow joint filing: Illinois (for income tax purposes, partners are considered spouses), New Jersey (file as Married/Civil Union filing jointly), and Vermont (file as Married/Civil Union filing jointly).

If taxpayers live in a state that allows a same sex couple to file jointly, at least four tax returns will have to be prepared and filed altogether:

• Partner 1 tax return
• Partner 2 tax return
• One “dummy” federal tax form as married filing jointly to reference
• One joint state return

Due to the intricacies of tax and state law, it would be advisable to consult with a tax professional.

 IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.