PRESS
Worth Magazine, March 2008
Unrecognized Unions
Couples who live together without marriage struggle when it comes to dividing - and keeping - their assets. read more ...
PridePlanners Member, James Tissot, CFP® acted as moderator. Panelists included Lisa Padilla, J.D., LL.M.; Jill Miller, J.D., LL.M.; and Joseph Rokacz, J.D. it was an open discussion format. The presentation was well received and was the most requested panel for a repeat performance. more info: http://www.prideplanners.com/news.htm
(“Published in The Loft Gay Center in May, 2006)
NY PASSED TRANSFER ON DEATH LEGISLATION
– GREAT NEWS FOR OUR COMMUNITY!
By Lisa Ayn Padilla, J.D., LL M
Good news for our community! New York finally passed legislation (we are the next to last state to do so) called “Transfer on Death” or “TOD” which enables us to protect our brokerage accounts for our partners at death, without lifetime gift implications.
One of the important issues about Marriage is the ability to give a spouse an unlimited gift; since we don’t have Marriage, we are restricted to gifts of $12,000 per year, per donee, which are called “annual exclusion gifts.” And, if we give more than the $12,000 per year, per donee, our $1,000,000 “lifetime gift exclusion” is reduced; when our lifetime gift exclusion is reduced to $0, we have to start paying gift tax for every dollar we give away over the annual exclusion amount for each donee! Ouch!
What happens when we have a brokerage account (not a regular checking or savings account) in the amount of $100,000 in David’s name, and want Robert to benefit? If David put Robert on the account, according to the laws of New York, there would be a gift of one-half of the account. (Technically, the calculation would be $50k (1/2 the account) minus $12K (the annual exclusion amount), which equals $38K; and, which would reduce David’s lifetime gift exemption by $38K, if he has any lifetime gift exemption left.)
But, there is a better way to handle this type of asset, which would let David keep control over the account (not worry about a relationship meltdown and wipe-out of the account) and also protect Robert from David’s predator family members. Thanks to the new legislation, David can designate the brokerage account as TOD to protect Robert. The concept is similar to a life insurance policy: when you own a life insurance policy, the owner can designate any beneficiary, and can change beneficiaries at any time. The same goes for a brokerage accounts now: David can name Robert as the beneficiary who will take the account only on David’s death – Robert will have no access to the account prior to David’s death – and no one can contest the transfer because it operates as a matter of law – there is no Surrogate Court involvement to determine the rights to the account, and it is extremely difficult for David’s predator family members to contest the transfer. Also, if Robert and David break up, Robert cannot clean out the account, and David can change the beneficiary on the account without any implications.
Another benefit of TOD is that the recipient of the brokerage account will have a “step-up in basis,” which, when applied to brokerage accounts, means that the survivor takes the brokerage account at the date-of-death value OR the value of the account six months after the date of death, whichever is greater (or less, depending on if there is an estate tax owed). “Capital gains” is generally determined by sales price minus basis. So, when the survivor goes to sell the assets in the account, he gets the benefit of the increase in market value of the account, which is called the “step-up.” The survivor will pay less in capital gains had he received the account as a gift from the deceased during the deceased’s lifetime (which would force the survivor to use the deceased’s cost of the assets to determine how much to pay in capital gains tax).
Without the TOD, David would be forced to create a new brokerage account with title in both names “joint tenants with a right of survivorship,” and to move $24,000 a year into that account – which would reflect a $12,000 gift to Robert – and if David is truly generous, which he is, that means that all of the other gifts that he gives to Robert are a “gift tax transaction,” and will reduce David’s lifetime gift exclusion – because those amounts are over the annual exclusion amount of $12K/yr/donee. Also, when Robert decides to sell the assets, he would have to use the value at which David purchased the assets in order to determine capital gains – which means value will be lost to taxes.
If Robert and David were Married, there would be no issue. Remember, married couples can give unlimited gifts to each other!
How else can this TOD legislation be used? Creating estate plans for people with a cooperative apartment can be difficult because cooperative boards may not recognize our partners as the rightful heirs to our apartment, perhaps because the partner may not independently qualify for ownership. As a result, the cooperative board may not permit partners to co-own the shares as “joint tenants with a right of survivorship.” With the TOD legislation (and it is too soon to determine how far the legislation will be extended in this regard), there may be a possibility for the cooperative shares to be designated as TOD, so, even if our partner does not independently qualify to own the shares at the date of the deceased’s death (hopefully, the deceased had enough insurance to keep the survivor in the money for a while, and which would permit qualification by the co-op board), the survivor will have the ability to sell the shares in his own name, without going through the probate process (and without subjecting himself to the predator family members) and he would not have to pay an exorbitant capital gains tax if he sold the shares immediately, because he would receive a step-up in basis.
The new TOD legislation is good news for our community, but it is also very complicated because of the tax issues involved so, make sure that you speak with a lawyer who specializes in this area. Your estate plan should be unique to you, and should never be a cookie-cutter form downloaded from the Internet. And, remember, Marriage will solve a lot of issues for our community – so please, be vocal with your legislators and vote for fair minded candidates!
Lisa Ayn Padilla, J.D., LL M., is an Adjunct Professor in the New York Law School Tax Program and a tax attorney specializing in financial and estate planning for non-traditional families. Lisa can be reached at (914) 366-4842.
 NEW JERSEY LAWYER
The Weekly Newspaper February 23, 2004
NJ domestic partner act: Much praise for the law that falls short of others
read more...
FIVE THINGS YOU CAN DO TODAY
“Published in The Loft Gay Center and The IQ Link in September, 2002”
By Lisa Ayn Padilla, J.D., L.L.M.
In my practice, I find that people are often overwhelmed by the prospect of gathering information about their financial lives in order to put an estate plan together. In addition, I find that many people are afraid to get started on estate planning because of fears of legal costs getting out of control. While it is always best to have an attorney specializing in estate planning review your personal papers, there are five things that you can do today to make sure that your paperwork is in order - and, doing these five things can save you lawyer time and keep your costs down.
1. Check your deed or cooperative shares. How assets are “titled,” or held, makes a great deal of difference in whether one’s estate passes directly to their partner or through a probate court (a sometimes lengthy and expensive process). New clients often assure me that they own their home as "joint tenants with right of survivorship," the method which is the most similar to the manner in which married couples own their home. More often than not, they don't. Without the magic words, “joint tenants with a right of survivorship,” at the moment of death of one partner, the surviving partner does not automatically receive the full property interest in their name alone, and, if the first to die had a will, the probate process comes into play. And if you die without a will? Property that is not owned as joint tenants with a right of survivorship will go through the probate process, and, by law, a portion of the property goes to your blood relatives, who can then exercise their rights to enter the home and remove personal items (remember If These Walls Can Talk II?), and even worse, force a sale of the home. One word of caution: before you change the deed to your home – speak to an attorney to discuss gift tax and “break-up” issues to determine whether owning property as joint tenants with a right of survivorship is the best way for you to own property with your partner.
2. Check your checking and brokerage accounts. The same “titling” issue applies here. Some states (sorry, not New York), permit a designation on bank and brokerage accounts known as “TOD” – transfer on death. This designation permits one partner to designate certain accounts to pass at the moment of death to a surviving partner without worrying about the $11,000-per-year-per-donee annual exclusion or “break-up” issues. Remember: married couples are permitted to make unlimited gifts to each other without any gift tax consequences, whereas unmarried couples and same-sex couples are not!
3. Check the beneficiary designations of your retirement accounts and insurance policies. Is the designated beneficiary someone you haven't dated in 5 years? This is something you can change yourself, without an attorney. Do you have children for whom you wish to provide? Or a favorite charity? Consult with your attorney regarding the new tax laws on these types of accounts. Remember: although keeping beneficiary designations current is always a good idea, you should review your overall estate plan every time you have a “significant life event,” (marriage, children, retirement, sudden wealth) or, as a rule, every five years.
4. Review your will. Do you have one? You should, for two reasons. The first reason is to protect your partner's interest in your property upon your death. The second reason is to protect your parents by excluding them from your will. Sound weird? Your parents' financial and estate plans may be impacted in a negative way because you failed to plan for your death. In other words, parents who have created an estate plan based upon a certain amount of wealth may be unprepared, from a financial, estate and tax standpoint, to have a significant increase in assets from your estate because you died without a will.
5. Support Marriage Equality. Fax a note to your elected officials to say that you support Domestic Partnership Registration Legislation. Even if there will be no immediate financial benefits from the recently revised proposed legislation, the fact that you have registered with your partner may be important in the long run. Remember that the survivors of 9/11 were required to show documentation of their relationship. What better documentation than a certificate from our local government? Hopefully, someday soon, it will be a marriage license from Town Hall!
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