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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