Foreign Prenuptial Agreements: A Tale of Two Cities, Two States, and Two Property Regimes

They met in Paris in the summer of 1965. She was a Canadian student studying at the Sorbonne. He had just graduated from college. They fell in love and decided to get married in Paris. Prior to the nuptials, she requested that they execute a "Contrat de Mariage," a premarital agreement under the French Civil Code. In order to abide by all of the French formalities relating to the execution of the agreement, she hired a "notaire" and arranged for an interpreter to be present in order to assure the protection of her fiancé's rights. The purpose of executing the prenuptial contract was to opt out of the default community property regime in France in favor of the "separation of estates" regime.

There are two marital property regimes in France. When if a couple does not execute a premarital contract, the default regime is the community property regime (communauté légal), under which all assets and properties acquired during the marriage become the joint property of both spouses. Where a couple does not want to have such joint ownership, they must execute a "Contrat de Mariage" whereby they retain ownership of their separate property and at death their property is passed on to their respective heirs and not to each other.

After their wedding, the couple moved to New York where they resided for the next 38 years. She worked as a professor and later as a cultural counselor for the Quebec government, all the while caring for the couple's two children. He worked in finance, having been trained as an economist. Over the course of their marriage, she acquired between $700,000 and $800,000 in liquid assets, while he acquired around $7 million in liquid assets. Together they purchased a country home in Lenox, MA in 1988 and a co-op apartment on Fifth Avenue in 1998.

She moved their belongings into the apartment in early 1999 and began living there in March. He did not move in. Instead he sent her a letter asking for a divorce. He first commenced a divorce action in New York, an equitable distribution state. For a number of reasons, he discontinued his divorce action in New York (a grounds state, where no-fault divorce is not allowed) and initiated a new action in Massachusetts in 2001, but it was dismissed for lack of jurisdiction. In the meantime, she began a divorce action in New York while he again filed for divorce in Massachusetts. He was finally granted a no-fault divorce in Massachusetts, but the Massachusetts court referred all economic issues back to New York for adjudication.

These are the facts recited in the case of Van Kipnis v Van Kipnis (2007 NY Slip Op 06074 [43 AD3d 71]), a case that would finally be decided in 2008 New York's highest court, the Court of Appeals (11 N.Y. 573 (N.Y. Dec. 18, 2008)). At issue was the validity of the French marriage contract that specifically opted out of the community property regime. In its opinion in favor of the husband, the Appellate Court, First Department found that the contract was unambiguous in setting down a framework for separate property. Specifically, the court focused on the first article of the contract titled "Marital Property System":

"The future spouses declare that they are adopting the marital property system of separation of estates, as established by the French Civil Code.

"Consequently, each spouse shall retain ownership and possession of the chattels and real property that he/she may own at this time or may come to own subsequently by any means whatsoever.

"They shall not be liable for each other's debts established before or during the marriage or encumbering the inheritances and gifts that they receive.

"The wife shall have all the rights and powers over her assets accorded by law to women married under the separate-estates system without any restriction."

The Appellate Court further found that the couple had effectively ratified this contract over the 40 years of their marriage by keeping all of their liquid assets in separate accounts. As to the real estate properties, the Supreme Court below had agreed with the findings of a Referee and had awarded the co-op apartment to the wife, as well as $7,500 a month in maintenance and a substantial portion of her legal fees, and the country home to the husband.

The Court of Appeals ruling agreed with the court below and went further to clarify the status of prenuptial agreements in New York, including those that may have been contracted abroad:

"The Domestic Relations Law therefore contemplates two basic types of prenuptial agreement that affect the equitable distribution of property. First, parties may expressly waive or opt out of the statutory scheme governing equitable distribution (see e.g. Bloomfield, 97 NY2d at 193; Housset v Housset, 200 AD2d 508, 509 [1st Dept 1994]). Second, parties may specifically designate as separate property assets that would ordinarily be defined as marital property subject to equitable distribution under Domestic Relations Law § 236 (B) (5). Such property would then remain separate property upon dissolution of the marriage. In either case, the intent of the parties "must be clearly evidenced by the writing" (Tietjen v Tietjen, 48 AD3d 789, 791 [2d Dept 2008]). "

In the Van Kipnis case, the prenuptial agreement followed the second schema by designating as separate property assets that would have ordinarily been defined as marital property.

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Prenuptial Agreements: Providing for the Children

For many couples, the decision to marry includes a desire to start a family.  Some couples come to the marriage with children from prior relationships.  These parents and parents-to-be all desire the same thing:  the best for their children.  A prenuptial agreement can memorialize the agreements between the parties regarding the children.

New York's Domestic Relations Law (DRL) 236[B](3) permits the inclusion of "provision for the custody, care, education and maintenance of any child of the parties, subject to the provisions of section two hundred forty of this chapter."

There are complex and emotional issues to be discussed, such as those regarding religious upbringing; parenting styles; allowances and other money issues; choice of schools (public; private; homeschooling); the appointment of guardians in the event of the death of the parents; which holidays are celebrated, and with whom; vacations with the children; and the amount of time spent with grandparents.  Provisions may be made in the prenup for health care coverage (medical, dental, vision, psychological) and how unreimbursed medical costs will be handled.  With the rising costs of higher education, some couples may want to set out a provision for how these costs will be funded.  Depending upon the circumstances, some parties may choose to set up education accounts as separate property.

Time spent with grandparents may seem like a given to most couples, but in the event of a separation or divorce the right to visitation by the grandparent is not automatic.  In 2000 the U.S. Supreme Court in Troxel v. Granville (530 U.S. 57 (2000)) held that forcing a parent to allow a grandparent visitation rights violated a parent's fundamental rights and liberty interests concerning the upbringing of their child.  After Troxel, grandparents who wish a court to order grandparent visitation must show that the absence of such visitation is not in the best interest of the child.  Therefore, if such visitation is important to the parties, it should be clearly stated in the prenuptial agreement.

If one party is already paying child support for children from a prior relationship, then it is important to talk through how the family finances will be organized fairly so that resentment does not become a factor in the marriage.  And where stepchildren and visitation are concerned, having clarity about parental responsibilities, the role of the step-parent, and household responsibilities for the blended family are paramount to prevent disagreements, divided loyalties, and harsh feelings.

Coming to terms in a prenup concerning children requires an open discussion about these and other issues that concern the welfare of children in the planned marriage.  Your attorney can assist you in drafting an agreement that will satisfy your needs and the needs of present and future children.

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Prenuptial Agreements: Defining the Terms of the Marriage

During courtship, a couple may choose to look at some of the more complex issues that arise within the context of a marriage.  Some couples may take a premarital course or counseling to prepare for their life together.  Some States, like Florida,  have enacted laws that provide a discount on the marriage license fee for couples who elect to take a four-hour premarital preparation course.  Other States have followed suit.  And while these laudable efforts encourage awareness of issues that traditionally bring stress into the marriage relationship, premarital counseling does not create any contractual obligations between the parties. A prenuptial agreement, on the other hand,  defines the terms under which the couple will live together during the marriage.  It can also spell out terms should the couple separate or divorce.  This is particularly important if the parties have children from prior relationships, or one party has substantially more assets or income than the other.

New York's Domestic Relations Law (DRL) 236[B](3) allows "provision for the amount and duration of maintenance or other terms and conditions of the marriage relationship, subject to the provisions of section 5-311 of the general obligations law, and provided that such terms were fair and reasonable at the time of the making of the agreement and are not unconscionable at the time of entry of final judgment."  We will now deconstruct the language of this statute to see how each section applies to the drafting of a valid prenuptial agreement.

DRL 236-B(6) sets out the statutory provision for spousal maintenance in New York.  "In determining the amount and duration of maintenance the court shall consider:

(1) the income and property of the respective parties including marital property distributed pursuant to subdivision five of this part;
(2) the duration of the marriage and the age and health of both parties;
(3) the present and future earning capacity of both parties;
(4) the ability of the party seeking maintenance to become self-supporting and, if applicable, the period of time and training necessary therefor;
(5) reduced or lost lifetime earning capacity of the party seeking maintenance as a result of having foregone or delayed education, training, employment, or career opportunities during the marriage;
(6) the presence of children of the marriage in the respective homes of the parties;
(7) the tax consequences to each party;
(8) contributions and services of the party seeking maintenance as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party;
(9) the wasteful dissipation of marital property by either spouse;
(10) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; and
(11) any other factor which the court shall expressly find to be just and proper."

Each of these eleven points can become the subject of a term in a prenuptial agreement.  However, the statutes makes clear that any such agreement regarding spousal maintenance must not run counter to the orovisions of 5-311 of the General Obligations Law:

§ 5-311. Certain agreements between husband and wife void. Except as provided in section two hundred thirty-six of the domestic relations law, a husband and wife cannot contract to alter or dissolve the marriage or to relieve either of his or her liability to support the other in such a manner that he or she will become incapable of self-support and therefore is likely to become a public charge. An agreement, heretofore or hereafter made between a husband and wife, shall not be considered a contract to alter or dissolve the marriage unless it contains an express provision requiring the dissolution of the marriage or provides for the procurement of grounds of divorce.

New York requires grounds for a divorce; it is not a no-fault state.  Also, New York does not recognize irreconciable differences as grounds for divorce.  A couple may obtain a divorce in New York only on the basis of the following grounds (Domestic Relations Law §170)

• 
  
  Cruel and inhuman treatment (Domestic Relations Law §170.1)
• 
  
  Abandonment for a continuous period of one year or more (DRL §170.2)
• 
  
  Imprisonment for more than three years subsequent to the marriage (DRL §170.3)
• 
  
  Adultery (DRL §170.4)
• 
  
  Conversion of a separation judgment (DRL §170.5)
• 
  
  Conversion of a written and acknowledged separation agreement after living separate and apart for more than one year (DRL §170.6)

Therefore, a couple may not contract to separate or divorce in a prenuptial agreement, or to contract to procure grounds for a divorce.  Nor may a couple stipulate terms in a prenuptial agreement that would render one party a public charge of the state in the event of a divorce.

What permitted provisions might a couple place in a prenuptial agreement?  Some health -conscious couples may want to include provisions about smoking or weight-gain.  But such provisions are not enforceable.  But provisions in a prenuptial agreement about the continuation of health coverage should the couple divorce can be enforceable.  A prenuptial agreement could also stipulate that any transfer of property in exchange for a release of a substantive claim on the other party's estate occur after the wedding in order to mitigate adverse income tax and gift tax consequences.

What makes a prenuptial agreement unconscionable?  In Schultz v. Schultz (2009 NY Slip Op 00199 [58 AD3d 616]), the Appellate Division, Second Department defined unconscionable agreement as "one which no person in his or her senses and not under delusion would make on the one hand, and no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense. However, an agreement is not unconscionable 'merely because, in retrospect, some of its provisions were improvident or one-sided' and simply alleging an unequal division of assets is not sufficient to establish unconscionability."

 

Therefore, within the scope of the statute, there is room for a couple to define the terms of their marriage, terms that will provide for harmony and for fairness during the course of their life together. 

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Prenuptial Agreements and Property: Getting Clear about Title

In January 2010, the New Times Times published an article in the real estate section about the growing number of unmarried couples purchasing real estate together ("Come Buy With Me and Be My Love").   While the attraction may be low mortgage rates or the ability to buy a more desirable property that the current housing market has placed within an unmarried couple's reach,  the couple in consultation with their attorneys should give care and thought to such issues as to how the property will be titled, how the property will be treated in each party's Will, how payments and tax issues will be apportioned, and whether a new deed will be drafted and recorded in the event that the couple marries.

For an unmarried couple wishing to purchase real estate together, a prenuptial agreement can resolve these issues before the purchase is made.  Domestic Relations Law (DRL) 236[B](3) recognizes provisions in prenups "for the ownership, division or distribution of separate and marital property."  As we shall see, the way in which a property is titled has some serious repercussions.

To simplify this discussion, I have divided ownership types by whether or not they have a right of survivorship, meaning that the surviving tenant will become the owner of the entire property without Probate.  The surviving tenant's claim on the property will be first in line over any other claims on the property. 

There are two ways to title property to ensure the right of survivorship.  The first is available only to married couples:  tenancy by the entirety.   For married couples in New York, this is the default title.  It affords certain rights not available to unmarried couples.  Tenancy by the entirety presupposes that in marriage the two become one.  The law views the couple as a single unit.  Each spouse owns an undivided 100% of the property.   Neither spouse can sell or diminish the 100% share that each owns without the consent of the other.  Should a creditor obtain a lien on one spouse's interest in the property, the lien will only survive if the debtor spouse is the surviving spouse.  Otherwise, the lien is extinguished with the death of the debtor spouse.  Moreover, the property cannot be reached in a bankruptcy proceeding. 

Joint tenancy with right of survivorship provides some of the same protections for an unmarried couple.  Each persons owns an undivided 100% interest.  However, one party may transfer or put a lien on his/her interest without the knowledge or consent of the other joint tenant, thereby severing the joint tenancy and making the property a tenancy in common.  Moreover, the interest of each joint tenant can be attached by creditors or in bankruptcy.  When attachment takes place, the property can be sold to recover against the debt, and the proceeds of the sale will be divided between the unencumbered party and the bankruptcy trustee.

When a joint tenant transfers his/her interest to a third party, the joint tenancy with right of survivorship is severed and the parties become tenants in common with no right of survivorship.  Why is this important?  First, it can be done without the knowledge or consent of the other party.  Secondly, it can undo the estate planning that the other party has done, particularly if there is every expectation by the non-suspecting party that the property will pass outside Probate to the surviving party.

Tenants in common have no right of survivorship.  When one tenant in common dies, their property rights pass according to their wishes in their Will, or by the applicable rules of intestacy if they die without a Will.  Each tenant in common enjoys full possession of the property and may not be excluded without compensation.  Tenants in common need not have equal shares, and more than two persons may own the property together.  A tenancy in common affords no protection from creditors or the bankruptcy court.  One joint tenant can transfer his/her ownership rights to a third party without the consent of the other, effectively giving the other co-tenant a new "roommate."  That third party will now be in possession with the remaining original co-tenant.  The only remedy that the remaining original remaining co-tenant has is to demand a sale of the property and a division of the proceeds.

With a prenuptial agreement, the couple can clearly designate how the property will be titled.  In addition, they can agree to apportion payments based on a percentage of each other's earnings, reviewable on a yearly basis.  Since each party will be filing taxes separately until the marriage, the prenuptial agreement can spell out the pro rata percentage that can be used for deductions on the IRS's Schedule A.

Finally, the prenuptial agreement can spell out if and how the unmarried couple will re-title the property as a tenancy by the entirety in the event of a marriage.  Will the property become marital property, or will it remain separate property?  Being up-front about one's intentions can spare both parties much anxiety and grief, and also bring clarity to each party's estate planning. 

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Prenuptial Agreements and Wills: Loving Acts for a Stable Marriage

As I emphasized in a prior posting, the prenuptial agreement has gotten some bad press because it has been portrayed in celebrity divorces as a way to shield assets from one's spouse in the event of a divorce.  As a result, many couples shy away from prenups because they see them as signs that the couple is already planning for a divorce even before they are married.  But a prenuptial agreement can be just the opposite:  a foundational element for long-term marriage stability.  In this post, we will look at how incorporating into a prenup an agreement to draft Wills makes sense to protect the couple's estate, family, and wishes.  Having such a provision in a prenup can bring great peace of mind.

Domestic Relations Law (DRL) 236[B](3) is the statute that controls prenuptial agreements in New York.  The statute states that a prenuptial agreement may include (1) a contract to make a testamentary provision of any kind, or a waiver of any right to elect against the provisions of a will.  We will examine in detail what this provision means to you.

A prenup may include a provision to make a Will (this is called a contractual Will) or, in some cases, not to revoke a Will.   In New York, a contractual Will must contain an express statement in the Will that its provisions are intended to constitute a contract between the parties.  Contractual Wills may be revoked by an agreement of the parties.

Having a Will is not only a good idea, it is a loving act.  According to a 2007 article in Forbes, a survey done by Harris Interactive found that 55% of the general population had no Will.  If you die without a Will (i.e., intestate) in New York, New York State has a default plan for your estate, but you may not like the plan.  New York's Estates, Powers and Trusts Law (EPTL) § 4-1.1 governs the distribution of estates from persons who die without a valid Will.  This chart summarizes the law:

As you begin to have a frank conversation about how you want your estate distributed in the event of your death or the death of your spouse after marriage, it is a good idea to begin by having each of you fill out a family tree, like this one provided by New York State.  You will want to update this family tree yearly, and you will want to bring it with you for your attorney during your yearly visit to review your Will and estate planning.   And if you have not done so already, you will want to have a frank discussion about any known congenital diseases that are present on your family tree.  By being honest and open about your family tree issues with each other, you will build invaluable bonds of trust that will support your marriage when the difficult times come.

Each of you may also want your Will to reflect a gift to a favorite charity or non-profit organization, like a college or university.  That charitable gift will have to be expressed in your Will.  Likewise, there may be heirlooms or other family memorabilia that you would like kept in your family of origin.  Your Will is the place where you will want those exclusions made known. 

The prenup is the place where you can agree to include in your Will an added provision specific to your future spouse after the marriage takes place.   For instance, you might include a bequest to your spouses's alma mater creating a scholarship fund in his or her name.  When the gift is one of tangible property, during your yearly review with your attorney you will want to make sure that the promised item still exists as part of your estate.  If the item has been lost or destroyed, the gift is said to adeem.  But this situation can be easily rectified by modifying the prenup as we discussed in a prior post. 

The statute also says that either party can waive any right to elect against any provision of a Will.  Here the statute is referring to the elective share statute (EPTL § 5-1.1-A).  The elective share statute protects against disinheritance by either spouse by giving the surviving spouse a minimum share of the decedent's estate.  In New York, the elective share amounts to the greater of 50K or 1/3 of the net estate after the payment of debts, but before the payment of estate taxes.  In a prenup, either party can waive their right to the elective share.  One reason to exercise this waiver might be to protect children from a prior marriage.  Whether to waive an elective share in a prenup is a decision that must be made carefully and with full disclosure of the salient facts, including full financial disclosures. 

One advantage of drafting a prenup is that it encourages financial disclosures before marriage.  It will also encourage discussions about the emotional aspects of money (saving and spending habits, attitudes concerning debt, and issues surrounding dependency, control and self-image).   Each party should fill out a personal statement of net worth, such as this example by the Small Business Administration.  Getting into the habit of talking about financial issues before and during the marriage will go a long way in building trust in the relationship.

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Can a Prenuptial Agreement Be a Foundation for a Strong Marriage?

This blog post begins a series of articles examining prenuptial agreements in New York.  While "prenups" have often been portrayed using the language of warfare as either "weapons" or "shields" to be used in the event of a divorce, I would like to cast the prenuptial agreement in a very different light.  I would like to focus on the prenuptial agreement as a document that empowers each party in the marriage to establish through concensus a working framework for the marriage.  By bringing to light and agreeing upon the most thorny of issues that are known to divide a couple (including the care and upbringing of any children; financial support by and for the parties; and ownership of property), the prenup allows each party to stipulate the elements that will make each comfortable as they enter the marriage. 

While the statute that controls prenuptial agreements in New York is found in the context of a matrimonial action (separation or divorce), the prenup need not be a pre-emptive strike that envisions the dissolution of the marriage.  Rather, the prenup can be the manifest of the agreements that the couple considers foundational to their long-term relationship.  In fact, the ability to come to an agreement before the marriage on a set of difficult issues may be a strong indicator of future marital stability.  The prenup can also be a starting point for the couple's estate planning strategy.

Let us begin our discussion with a close examination of the statute that controls prenuptial agreements in New York, Domestic Relations Law (DRL) 236[B](3):

An agreement by the parties, made before or during the marriage, shall be valid and enforceable in a matrimonial action if such agreement is in writing, subscribed by the parties, and acknowledged or proven in the manner required to entitle a deed to be recorded. Such an agreement may include (1) a contract to make a testamentary provision of any kind, or a waiver of any right to elect against the provisions of a will; (2) provision for the ownership, division or distribution of separate and marital property; (3) provision for the amount and duration of maintenance or other terms and conditions of the marriage relationship, subject to the provisions of section 5-311 of the general obligations law, and provided that such terms were fair and reasonable at the time of the making of the agreement and are not unconscionable at the time of entry of final judgment; and (4) provision for the custody, care, education and maintenance of any child of the parties, subject to the provisions of section two hundred forty of this chapter.

The first thing to notice is that a prenup is an agreement by the parties.  The statute uses contract language to describe the necessary condition for a prenup:  a meeting of the minds of the parties.  There can be no duress (fear of violence or economic hardship, for instance) imposed by one party over another during the formation of the agreement.  The parties must come to an agreement of their own free will.  This is why I stronly recommend that each party be represented by independent counsel.

The second thing to notice is that the agreement can be made before or during the marriage.  This means that the prenup can be modified during the marriage to reflect changing life circumstances.  Before they marry, no couple can predict the joys and challenges that they will encounter in their life together.  One of the best things a couple can do is to review their prenup on a yearly basis to make sure that the elements that they agreed to are still current, and to take into account new factors that have arisen in their life as a couple by adding, modifying, or deleting sections of the agreement.  This is a healthy marital exercise that can bring a couple closer together.  Any such modifications to the original agreement should be done with the assistance of an attorney for each party.   The modifications must also demonstrate an absence of duress.

There are a number of formalities that must be observed in order for the prenuptial agreement to be valid.  The agreement must be in writing.  The legal names of each party must be in the document.  Because it must be proven "in the manner required to entitle a deed to be recorded," the document must be legible.  The agreement must be signed and dated by each party.  In New York, a prenuptial agreement must be notarized.  Each party should have an original of the signed and notatized prenup, with either originals or certified copies deposited with representing counsel.

Over the next four posts on prenuptials, I will deconstruct the four elements of the statute and discuss how each one can become a pillar in the building of a strong marriage.  I will also discuss how the forethought put into these four elements can be the first steps towards building an estate plan for a couple that will further solidify their life together, bring clarity to decision-making, and build trust in the relationship.

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Domestic Partnerships: Planning for Bereavement

While registered domestic partners enjoy some of the same benefits as spouses in the area of health insurance benefits, we have seen that there is a difference in how these benefits are treated with respect to income taxes.  Today we will examine what happens when one of the registered domestic partners dies.

In addition to registering their domestic partnerships, couples may decide to enter into a Domestic Partnership Agreement (DPA). A DPA is a legally enforceable contract that stipulates the rights and obligations of the parties. Among the provisions of a DPA can be provisions regarding the distribution of assets in the event of the death of one partner.  Domestic Partnership Agreements should be drafted by independent counsel for each party.

If the partner who dies is the employed partner whose employer provides health coverage for the surviving domestic partner, the health coverage for the survivor will cease.  The surviving domestic partner is not eligible for under COBRA for continuing health insurance unless the employer voluntarily provides such coverage and that the insurance carrier underwriting the plan permits the coverage.

One way to mitigate this situation is for the partner carrying the benefits (grantor) to create an Irrevocable Life Insurance Trust (ILIT) to benefit the surviving partner (beneficiary).  The life insurance proceeds from an ILIT are tax-free to the beneficiary and are also tax free to the estate of the decedent.  An attorney will likely draft an ILIT so that beneficiaries can be subsituted.  That way, if the grantor is no longer in a relationship with the beneficiary, another beneficiary can be named.

New York City provides bereavement leave if the surviving partner is a New York City employee.  Other employers may provide bereavement leave, but they are not required to do so by law for domestic partnerships.  The surviving partner will most likely be in a state of shock and grief, and will need support with daily tasks for some time.  Couples should have a frank discussion about bereavement needs and plan for these important steps. 

Of particular concern  are the housing needs of the surviving partner.  In the case of home ownership, during the life of both partners property may be titled as a joint tenancy with right of survivorship.  Upon the death of one partner, the property is transferred to the surviving partner outside of probate.  Note that this transfer is irrevocable, and that the gift is taxable to the partner receiving the gift.  Also, the creditors of each tenant can reach each tenant's share of the property. 

 

In New York City, one domestic partner may choose to add the other partner as a family member on a lease as a tenant in buildings under the jurisdiction of the Department of Housing Preservation and Development (HPD), thereby giving the domestic partner the right to remain in the shared apartment after the death of one partner.   As defined by HPD, domestic partner means " Domestic Partner means the same or opposite sex partner of the Head of Household."   The Department requires that couples provide a Certificate of Domestic Partnership, or that couples who legally entered into domestic partnerships, civil unions and same-sex marriages in other jurisdictions provide original valid legal domentation of such at the time that they apply.

 

Domestic partners who reside in New York should have valid Wills executed with the required formalities in New York and with an "in terrorem" clause in each Will.  This clause effectively says that any person challenging the Will will receive nothing in case the challenge to the Will fails.  New York law requires that even with a valid Will the decedent's legal heirs (surviving parents and siblings) will be named "necessary parties" to a probate proceeding.  This is true even when surviving parents and siblings are not named beneficiaries in the Will.  That is because they would become the legal heirs if the Will was invalidated for any reason.  

 

In addition to a valid Will, domestic partners may use a number of Will substitutes to transfer assets to the surviving partner without going through probate.  One such substitute is a payable on death bank account, also known as a Totten Trust.  The owner of the account signs an agreement at the bank, naming the partner as the beneficiary.  A Totten Trust is revocable at will by the owner of the account.  The account owner can close the account at any time, change the beneficiary without giving notice, and can dispose of the property in a Will.  In the event of the account owner's death, the deposits are payable to the beneficiary.  Note that Totten Trusts can be reached by account owner's creditors during the lifetime of the owner. 

 

Other Wills substitutes outside of probate include IRAs, 401Ks, and other retirement accounts that allow for the naming of  beneficiaries.  It is good practice to review one's beneficiary designations at least once a year to make sure that one's wishes are still in conformity.   Finally, domestic partners may want to consider creating revocable intervivos trusts to take care of the surviving partner during his or her lifetime, with the remainder going to the couple's chidren, relatives, or charities.  You should consult with an attorney to review and assess your own unique situation.

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Domestic Partnerships and Health Insurance Benefits

I wrote earlier about the importance of registering a domestic partnership in a locality that permits one.  Today I will discuss how these registries impact the ability of a domestic partner to obtain health insurance through the partner's employer when available, and how New York law distinguishes between the rights of spouses and the rights of domestic partners with respect to health insurance benefits.

According to findings by the office of Senator Chuck Schumer (D-NY), more than half of Fortune 500 companies now offer health benefits to registered domestic partners.  These employers either accept documentation from domestic partner registries, or they have their own domestic partnership affidavit, such as this example.  Generally these affidavits must be notarized, and the affiant must swear that he or she has not entered into another domestic partnership agreement in the past six months.   If a domestic partnership was previously filed with another partner, then an Affidavit of  Domestic Partnership Termination, such as this one for New York City, must be filed.  The individual must then wait six months before filling out an new domestic partnership affidavit with the new partner.

Even though a domestic partner may be able to obtain health insurance through the partner's company, New York distinguishes between the rights of married spouses and the rights of domestic partners in at least two ways.  I will focus today on regulations regarding small businesses, and the rules concerning the exclusions of these health benefits from taxable income.

New York draws an important distintion between insurance coverage for a small business of between 2 and 50 employees and coverage for the domestic partners of these employees.  The 1992 health insurance reform laws, 1992 N.Y. Laws 501, stipulate that no group of between 2-50 employees can be denied health coverage by an insurer (New York Insurance Law § 4317(a) ).  But according to the Office of General Counsel of the New York State Insurance Department in its informal opinion of March 22, 2005, " an insurer may choose not to provide domestic partner benefits to an employer-employee group with less than 50 employees."  This is because New York Insurance Law § 4305(c)(1) (McKinney 2000 and 2005 Supplement) provides that "(A)ny such contract may provide that benefits will be furnished to a member of a covered group, for himself, his spouse, his child or children, or other persons chiefly dependent upon him for support and maintenance... (italics my own)."  "Dependent" has been interpreted to include domestic partnerships. 

However, if an insurer provides domestic partner benefits for one small group, then it must provide these benefits for all small groups that it insures (N.Y. Comp. Codes R. & Regs, tit. 11, § 360.3 (1998)).  Also, unlike a spouse, should the employee experience a job loss for any "qualifying event," such as a reduction in force, retirement or death, the domestic partner is not eligible under COBRA for continuing health insurance unless the employer voluntarily provides such coverage and that the insurance carrier underwriting the plan permits the coverage.

As to taxation of these employer health benefits for the domestic partner, the Defense of Marriage Act (1996) prohibits the treatment of domestic partnerships on the same footing as spouses for the purpose of federal income tax, regardless of state law.  Spouses are exempts from the taxation on benefits on the federal and state levels.  However, benefits for domestic partners are considered taxable income.  Depending upon the employer and the plan, the employed partner may have to purchase the benefit for the domestic partner with after-tax dollars instead of the pre-tax payroll deduction available to spouses, thus increasing the tax burden.

There have been attempts at rectifying these inequities.  On 21 May 2009, Senator Chuck Schumer introduced the Tax Equity for Health Plan Beneficiaries Act of 2009.  Representative James McDermott (D-WA) introduced the companion bill H.R. 2625 in the House of representatives.  Both bills were incorporated into the Affordable Health Care for America Act (or HR 3962) of 2009.  Eventually, this reform bill was abandoned by the House in favor of amending the Senate's alternative health care bill through the reconciliation process.  The result was Health Care and Education Reconciliation Act of 2010 signed into law on 30 March 2010 by President Obama, a week after the President signed into law the Patient Protection and Affordable Care Act. 

The proposed Schumer legislation would have amended the Internal Revenue Code to:

(1) exclude from an employee's gross income employer-provided accident and health plan benefits extended to a domestic partner or non-dependent, non-spouse beneficiary eligible to receive such benefits under an employer plan (i.e., "eligible beneficiary");

(2) exempt such benefits paid to eligible beneficiaries from applicable employment and unemployment taxes;

(3) allow self-employed individuals a tax deduction for the health insurance costs of their eligible beneficiaries;

(4) allow tax-exempt volutary employee's beneficiary associations to provide sick and accident benefits to the domestic partners and non-dependent, non-spouse beneficiaries of their members; and

(5) allow reimbursement of the medical expenses of an eligible beneficiary from a health savings account (HSA). Directs the Secretary of the Treasury to provide guidance relating to reimbursements from a flexible spending arrangement and a health reimbursement arrangement attributable to an eligible beneficiary as defined by this Act.

It remains to be seen what the effects, if any, of the new federal health care reform will be on the health insurance benefits of domestic partners.

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Hospital Visitation Rights in New York after President Obama's Mandate

On 15 April 2010, President Obama extended the right of a patient to designate hospital visitation to persons not legally related to the patient through a legally valid advance directive, such as a durable power of attorney or a health care proxy.   This new right will apply to any hospital receiving Medicare or Medicaid funding.  President Obama ordered the Secretary of Health and Human Services to draft new rules for hospitals that receive any Medicare or Medicaid funding.   Persons most affected by this new mandate are unmarried couples including same-sex couples, widows and widowers without children, and persons belonging to religious orders.  

According to newspaper reports, President Obama was deeply moved by the case of Janice Langbehn whose partner of 18 years died alone in a Florida hospital while they were on vacation with their adopted children.  Langbehn sued the hospital over visitation rights in federal court, and in September of 2009 the U.S. District Court for the Southern District of Florida dismissed the suit on the grounds that “the hospital has neither an obligation to allow their patients’ visitors nor any obligation whatsoever to provide their patients’ families, healthcare surrogates, or visitors with access to patients in their trauma unit.”

How does this new mandate affect persons living in New York?  Public Health Law § 2965 currently gives the same-sex partner of an incapacitated person the right to make medical decisions on behalf of the patient.  But there is an important distinction under that law:  the same-sex partner has the right as a "close friend" and not as a life partner.  That means that, under the current statute, the decisions of close relatives such as parents, siblings, and adult children trump the decisions of the patient's intimate life partner.  The Obama mandate will grant the patient the right to designate his or her life partner and give that person the same rights over medical directives that a spouse or close relative currently holds.  That means that the decisions of the designee will no longer be in a position to be countermanded by family members who may not know the patient's wishes as intimately as the partner.

As to hospital visitation in New York, Public Health Law § 2805-q. already grants this right to registered domestic partners, whether gay or straight.  In New York City, domestic partnership registration is handled through the office of the City Clerk.  The requirements for domestic partnership registration are listed on the City Clerk's website, and the forms are also available online.  The website also lists the rights granted to the holders of the certificate of domestic partnership including "visitation in facilities operated by the New York City Health and Hospitals Corporation." 

In addition, in 2002 the City Council passed a bill that conferred New York City domestic partnership status to registered domestic partners, members of civil unions or gay marriages from other jurisdictions who move to New York City.  The new law eliminated the prior one-year waiting period for these couples or the cost and time associated with re-registering in order to access the benefits conferred immediately on resident domestic partners. 

President Obama's new mandate still requires that the designation of visitation rights to someone not legally related to the patient be through a legally valid advance directive such as a health care proxy.    In New York, a durable power of attorney is not sufficient for health care directives.  New York requires a health care proxy form.  New York State provides this form online.  Appointing someone as your health care agent takes serious consideration, and I encourage you to discuss the issues with your attorney.  In addition, New York's Public Health Law § 2981 requires certain formalities:  that a health care proxy be signed and dated by the adult in the presence of two adult witnesses who must also sign the proxy. 

Finally, it is well to note that a health care proxy is not a living will.  A living will sets out in clear language your wishes and instructions about your health care.  But because no one can know with precision the scope of health care decisions that may arise, the appointment of a health care proxy should be strongly considered when drafting a living will.  In my opinion, both documents are essential components of any estate plan and should be reviewed yearly to be sure that the directives and the agent still meet your needs and wishes.

The New CLASS Act and Your Estate: Planning with Long-Term Care in Mind

On 23 March 2010, President Barack Obama signed into law the Community Living Assistance Services and Supports Act (CLASS Act), creating a new voluntary publicly-sponsored national insurance trust for long-term care. CLASS is a part of the Patient Protection and Affordable Care Act. Designed to be a low-cost voluntary insurance program, CLASS is self-supported by premiums paid into the program by workers; no taxpayer funds are used. Unlike Medicaid, CLASS is not an entitlement program. Therefore, the only way that an individual derives a benefit from CLASS is if that individual contributes into CLASS through the payment of voluntary premiums primarily through an employer.

The Secretary of Health and Human Services is charged with developing both the premiums schedule and the schedule of benefits. The legislation does not specify either. But Congress did mandate that the schedules be actuarially sound and self-sustaining. Notwithstanding, several groups, including the Congressional Budget Office (CBO), have developed projections about both premiums and benefits. For example, the CBO projected in June of 2009 that an individual paying $65/month for initial decade would receive an average daily benefit of $75/day. But after 2019, the CBO-projected benefits dropped to $50/day and premiums for new enrollees went up to $85/month. But remember that these are mere projections. The final implemented version through Health and Human Services may incorporate different assumptions and different benefits.

Because the Act does not mandate screening of applicants, CLASS offers benefits to people who otherwise would not be eligible to apply for private long-term care insurance. However, CLASS is not designed to cover the full cost of long-term care. MetLife provides a long-term care calculator that can give you some realistic costs for long-term care in New York City and New York State. For instance, the annual cost of a semi-private room in New York City is $128,480. The daily rate would be $285. The daily rate is significantly less for an assisted-living facility ($153), and even less so for home care, around $58 per day for five hours of care, five days per week. The benefits of contributing into CLASS become apparent. And while some people would prefer to save for their long-term care needs, the rising cost of long-term care makes that prospect increasingly difficult.

In addition, no one can predict the seriousness of an injury or a disabling illness and the resulting costs of care and rehabilitation. But we can prepare to meet the challenge with a carefully crafted plan that take into account the individual's current state of health (physical, mental, emotional), their rate of savings, their family relationships, and their preferences as to long-term care, among other factors. Long-term care considerations should be part of any estate plan to make sure that financial resources are available and that assets are protected when the need arises.

Fortunately, New York State also has a unique program called The New York State Partnership for Long-Term Care that combines private long-term insurance with public Medicaid Extended Coverage. The website provides a list of participating private insurers. Most importantly, the program allows for partial or complete asset protection, providing some protection against "spousal impoverishment" in the case of nursing home care. It is well to remember that, for institutionalized care, any transfers of assets into an trust for Medicaid purposes is subject to a five-year "look back" period, and that some penalties may apply for some transfers of assets by the individual or his/her spouse if the transfer is made within that five-year window.

CLASS will provide New Yorkers with another arrow in their quiver as they contemplate their long-term care needs. Together with the New York State Partnership for Long-Term Care, CLASS will provide a valuable safety net, especially for those with pre-existing medical conditions.

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