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The legal wrangling over gay marriage in California in recent weeks has gotten a lot of attention for potentially expanding or limiting the rights of gay couples.

But aside from the cultural benefits that are at stake and the precedent that will be set by the ultimate decision, relatively few stand to receive any financial benefits. Of the more than six million unmarried-partner households, just under 780,000 are gay, according to the Census Bureau. Of those, only 3% are in Massachusetts - the sole state where gay marriage is legal - and 14% are in California, where there's a good potential it will be legal soon.

"We kinda hear this stuff on the news and think these people are getting the same rights as married people, but that's so not the case," says Harlan Levinson, a Los Angeles-based accountant who warns that gay married couples can face a higher tax bill today than if they had remained single. "These people still need to have a living will, power of attorney and to sit down with an attorney or financial planner."

By and large, gay couples - and domestic partners in general - need to protect themselves proactively when it comes to their fiscal health. At the very least, a will, power of attorney and medical power of attorney should be in place, says Loreine Smith, a financial planner with Dallas-based firm Life Plan Strategies.

She also suggests couples make sure assets are titled properly and that arrangements are made for medical issues, retirement, child custody and estate planning. "It becomes very important in case one pre-deceases the other or in case they split up," says Smith. "If it's after the fact, there isn't a whole lot they can do."

Some tips on protecting yourself, regardless of how things play out in court and the legislative halls:

Health Care

More employers have begun extending benefits to domestic partners, but certainly not all. A 2007 Hewitt Associates survey found that 54% of firms offer coverage for domestic partners but only 32% offered benefits to both same- and opposite-sex couples.

If that is not an option, domestic partners should craft legal documents that designate a non-spouse beneficiary.

Partners should also seek out long-term care insurance and government benefits, says Ian Weinberg, a financial planner with Long Island-based Family Wealth & Pension Management. If one person does not have additional coverage, he or she can potentially tap into Medicare or Medicaid and supplement that plan with personal income.

Weinberg also warns against owning a home as joint tenants, because it allows the government to lay claims to the asset if either party is ill and needs government benefits.

"You have to segment out the emotional aspect of it versus the practical aspect," he says. "You want to say, 'We own this home in the Hamptons together; we own this home in the city together,' but technically it's not a good idea to have it set up this way."

Taxes

Even when gay marriage is a state-offered option, it packs a punch with taxes as long as the commitment is not recognized at the federal level.

"They're going to get hammered," says Joan Zawaski, tax director at San Francisco-based accounting firm A. L. Nella & Co., which filed about 60 returns for gay married couples last season.

Costs can be nominal or extreme, depending on the couple's financial position, but it's an important factor to consider. Those with large estates of $2 million or more have to consider hefty estate taxes that come with passing along assets to a non-spouse. Sharing more than $12,000 per year with a non-spouse will also face gift taxes.

For income tax, A.L. Nella found that gay married couples who both earned decent salaries posted higher costs than those with one primary earner. It's also more expensive to have the complicated returns prepared.

Estate Planning

Avoiding a will can be even more dangerous for domestic couples, since the partners don't have the same implicit rights as married couples.

"A lot of people don't like to think about wills," says Zawaski. "They don't like to think about the fact that they're going to die, but it's not fair to your partner or your children, if you have any."

Setting up a living trust with your partner as the beneficiary can ensure that assets will get distributed as intended in case of death. Creating a life-insurance policy in the partner's name can also keep some cash out of the taxable estate, Zawaski adds.

It's important to make sure documents are updated as situations and assets change over time. Having accurate legal documents limits the possibility that unsupportive family members will intrude on your last wishes. Levinson says brutal encounters can occur in court and otherwise if last wishes aren't made official.

"If there's intestacy, there could be a real hassle to disentangle this," he says. "When close relatives are not supportive off the relationship, it can be pretty ugly."

Tracking Down Experts

Partners should find tax, legal and estate-planning experts who have experience with their situation to make sure all aspects are given the proper consideration.

"All of these things have to be balanced very delicately because they all affect each other," says Weinberg.

Getting a referral from a trusted network of people can better ensure that the lawyer or planner is sympathetic and experienced with the situation.

It can be a long and frustrating process to hunt down professionals, pay the extra costs, pore through the paperwork, update information and make tough financial and personal decisions. However, its importance can't be overstated, especially for those with large assets or complicated situations that will require a roadmap in case of emergency or death.

"It's a pain in the neck," says Zawaski. "There are lawyers' fees to draw it up; you have to retitle all your assets. But once it's done, it's done."

Source for post: TheStreet.com

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It is always a good idea to review the various aspects of your family's financial plan, including your estate plan, on a regular basis. I know that this is often easier said than done. In addition, it is usually a good idea to consult your accountant, financial advisor and attorney before making major life decisons, such as getting married, adopting a child (or on the birth of a child) or getting divorced. Here is a fairly comprehensive list of life events that warrant such a review, courtesy of tax lawyer Charles Rubin:

• Birth of a child or grandchild;
• Marriage of self or heir;
• Divorce;
• Death of a spouse or child;
• Major change in the tax laws;
• Major change in financial circumstances, such as a substantial inheritance;
• Change of domicile to a new state or country;
• Acquisition of out-of-state or out-of-country property;
• Major illness;
• Acquisition or sale of a business or real estate, including major liquidity events;
• Major charitable gifting;
• Acquisition of life insurance or significant annuity policies;
• Significant gifting to friends or family members;
• Or in the absence of any of the above, the passage of 4-5 years since the last review.

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If you are a business owner, your business likely represents a substantial portion of your net worth. Ultimately, your share of the business may very well comprise the most significant portion of your estate when you die. If you are a sole proprietor or are otherwise the sole owner of the enterprise, of course, the business will pass at your death in the manner you direct (assuming you have properly planned your estate!) If you have partners, or if you are a shareholder in a closely held corporation, however, it is critical that you have a buy-sell agreement in place. The buy-sell agreement will govern how your share of the business is to be disposed of, and will also set the price for which your share will be sold. It can also direct how the purchase of your share is to be funded. As Robert Cavanaugh outlined in an article that he authored on this subject, a properly drafted buy sell provides several significant advantages to business owner:

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Succession planning can sound intimidating. But taking the proper steps now to designate how your business will operate if you are unexpectedly unable to work can save your loved ones and business partners from future headaches and arguments.

“If you own a small business, planning for the future is especially critical,” says Wynne Whitman, a New Jersey-based estate lawyer and co-author of Wants, Wishes, and Wills (Financial Times, 2007). Such planning should not only include specific arrangements that designate who will step in for you in the case of your death, but also if you become incapacitated.

“You really want it to be clear to your employees and your family exactly what is supposed to happen if you’re in a car accident and out of the office for six months,” she adds. One way to do this is to obtain a power of attorney through either your corporate attorney or estate lawyer to authorize who will legally act on your behalf in business matters. This could include a spouse, a son or daughter whom you have been training, or a trusted employee.

Without a power of attorney, a court action to appoint a guardian may be necessary if you become incapacitated. This is not only expensive and time-consuming, but also very public. The court may ask for documents proving your company’s assets – as well as your illness – when deciding a guardian, whom may be someone you would not have originally chosen.

Whitman recommends that entrepreneurs make sure that their partnership agreements and operating agreements have provisions in place for both the death and incapacitation of a member, including buy/sell agreements which designate how the other owners can purchase a deceased or incapacitated member’s shares. Without one, your partners may argue over how to value your interest and disagree on who should have the right to purchase the shares from your estate if you pass away or must leave the business. (To afford your partner’s shares, you may want to consider purchasing a life insurance plan that would pay you a premium in the event of a partner’s death. For more on buy/sell agreements, see our Success Guide to Estate Planning.)

However, for sole proprietorships, similar documents may not exist.

“If you’re a sole proprietor, it’s unlikely that you have any kind of operating agreement,” says Whitman. She urges single owners to consult with an attorney to make sure their succession policies and procedures are clear. Also, she recommends that sole proprietors obtain life insurance and disability income insurance to help their family absorb the lost income and pay for estate tax obligations, which may prevent them from having to sell the business.

“It’s not the happiest subject to discuss, but I find that people make better decisions when they’re feeling well and death isn’t imminent,” says Whitman, who urges her clients to consider these possibilities when their heads are clear. “The expense, the cost, the time, and the heartache that’s left to your beneficiaries and your employees if you don’t do any planning, are really catastrophic.”

But the focus, she adds, should not rest solely on your business.

“It’s really hard to focus your attention on your personal needs; we always seem to put ourselves last,” says Whitman, who finds that entrepreneurs are no more likely to prepare for their personal obligations than other people – including proxies to act on your behalf in legal and health care matters, as well as wills to designate how your assets should be distributed after your passing. “If you’re a successful businessperson, you need to not only consider the future success of your business, but also the future success of your family.”

Source for post: Success Magazine

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