Julia A. Peloso, CFP, ADPA, CRPC
®
®
Senior Portfolio Manager
Vice President
Wealth Advisor
Accredited Domestic Partnership Advisor
SM
®
2000 Westchester Avenue 1NC
Purchase, New York 10577
914-225-6391
/ Main
888-499-8544 / Toll- F ree 914-225-6770 / fa x
www.morganstanleyfa.com/julia.peloso
Julia.Peloso@morganstanley.com
Julia Peloso, CFP, ADPA, CRPC
®
®
®
Senior Portfolio Manager
Vice President
Wealth Advisor
As an Accredited Domestic Partnership Advisor, I have the knowledge and
SM
experience to help make a difference in your life.
Simplifying complexity through collaborative problem-solving and education
Couples and families seek to live life on their own terms, but same-sex couples
face additional challenges. The world, never a simple place, seems to get more
complex every day. When you have a question about the impact of the latest news
on you and your family, where do you turn for help?
Julia’s clients often turn to her to help decipher news and events around the
world. They know that she will take the time to help them understand how the
global becomes the local and the personal. Particularly in the financial area, samesex couples’ decisions require deeper analysis and more careful planning as they
work together to achieve many of life’s more important goals.
What do you need to know to make sound financial decisions? What factors are
likely to affect your family’s finances and long term planning? The more you know,
the better able you and your family will be to live life on your terms.
We have ample evidence that even the most sophisticated technology cannot
accurately predict human behavior. Julia’s focus on her clients’ emotional needs as
well as their financial goals and aspirations means a more conservative approach to
risk management.
Strategies are framed in the context of trade-offs. Julia works with her clients
to help them prioritize the financial and emotional trade-offs that have the most
value to them.
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
3
My background
Julia Peloso, cfP®, aDPa®, cRPc®
Senior Portfolio Manager
Vice President
Wealth Advisor
Since 1984, I have been helping people
transform their financial dreams into
realities. With my first love being teaching, I have a passion for breaking things
down in order to understand how they
work, and then educating others about
what I have learned. A key part of that
process is figuring out how changes to
components affect the whole, mostly in
order to focus on the few pieces that
can have the most impact on changing
the outcome.
LGBT people have many of the same
dreams held by everyone else. For us,
and for many reasons, it can be more
difficult to make those dreams into
realities. I believe that education and
professional training are critical, but
not the most valuable tool I offer my
clients. I am a student of human nature,
and never underestimate the impact our
emotional needs have on our behavior.
Through my own personal experiences
of more than 30 years and my technical
knowledge and experience I have an
appreciation of our capacity to be irrational and act against our best interests.
I value my technical knowledge, and
have continued to pursue it, earning
certifications targeted at improving my
skills. I am a CERTIFIED FINANCIAL
PLANNERTM, a CHARTERED RETIREMENT PLANNING COUNSELORSM and
an Accredited Domestic Partnership
AdvisorSM. Each of these designations
requires annual or bi-annual continuing education, including both technical
skills and ethics.
I bring my full self to work every day,
and harness my knowledge and experience to help my clients plan for and
secure their financial futures.
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
5
On your terms. Couples and families across
America seek to live life on their own
terms, but same-sex couples face additional
challenges. Particularly in the financial area,
couples’ decisions require deeper analysis and
more careful planning as they work together
to achieve many of life’s most important
goals. What do you need to know to make
sound financial decisions? What factors are
likely to affect your family’s finances and
long term planning? The more you know,
the better able you and your family will be
to live life on your terms.
6
Morga n S ta n le y
8
12
knowing the law / p8 / The more
you know about laws in your state
and across the country — and about
how they are changing — the more
control you can have over your life.
same-sex family finances / p12 /
With health care expenses, employee benefits, income taxes and the
treatment of dependents — building a
workable financial strategy requires
navigating the special considerations
that apply to LGBT families.
planning your retirement / p16 /
Achieving the flexibility and financial
independence you want in retirement
will require a careful analysis of the
benefits that are — and aren’t — available to same-sex couples.
16
controlling your legacy / p20 /
20
Your legacy is the opportunity to pass
on the material rewards of your life
in the way that best fulfills your goals
and reflects your values.
7
The laws of your state will have an effect
on your life with your partner — on your
family structure, shared finances and long
term plans.
Do you want to marry
or have a less formal
relationship?
Do you plan to have
children or adopt?
Are you already
married?
Do you already
have children?
88
Morga n S ta n le y
Are you happy
where you live?
Are the laws
in your state
LGBT-friendly?
kNOWINg
the
LaW
The MORe YOu kNOW AbOuT lAWS IN YOuR
sTaTe and aCross The CounTry — and abouT
hoW They are Changing — The more ConTrol
YOu CAN hAVe OVeR YOuR lIFe.
If you are planning for the future with
a same-sex partner, your decisions and
strategies will necessarily be affected
by the legal environment in which you
make them. Begin with the big picture
by considering your answers to the following questions: How formal do you
want your relationship to be? Where do
you want to live? What about children?
There are legal dimensions to each of
these questions, and to many others that
you will need to address — a situation
made more complex by the rapid evolution of state laws across the country.
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
9
The laws of the land
Depending on where you
choose to live, current federal and state laws differ
widely, creating a complex
planning environment for
LGBT couples.
Federal law. Depending on their state
of residence, same-sex couples have
various legal scenarios to work with.
At the federal level, however, the Defense of Marriage Act defines marriage
as between one man and one woman.
Under this law, the federal government
does not recognize same-sex marriage.
This means that you and your partner
cannot file joint income tax returns,
you cannot claim the estate tax marital
deduction and your retirement assets
will not automatically roll over to your
spouse. In addition, same-sex couples
are not entitled to their partner’s Social
Security benefits.
State laws. States can make their
own determination about same-sex marriage. If you live in a state that allows
same-sex marriages, you are treated in
the same way as a heterosexual couple
with regard to state income taxes. You
also enjoy spousal inheritance rights, as
well as spousal election at death. That
means a surviving partner has the right
to claim what the state deems is a fair
share of the deceased spouse’s estate,
rather than what is specified in a will.
Other states are not required to recognize an existing same-sex marriage, so
if you and your partner move, you will
need to educate yourself about the laws
of your new home state.
What is included in a cohabitation agreement? This legal contract between you and your partner
formally defines the financial status and obligations in your relationship — and can be particularly
important if you split up.
recitals
Helps to ensure clarity by stating when you began living together and
providing a brief history of your relationship
disclosure of assets and liabilities
A balance sheet listing the value of each asset and liability along with
ownership, an important financial baseline
distributing property in case of
death or breakup of relationship
May reduce conflict and cost by detailing what will happen to assets in
the event of death or a breakup
obligating financial support
Defines expectations and responsibilities for ongoing support when
one partner is the main breadwinner in a relationship that dissolves;
similar in concept to alimony
handling the payment of debts
Details who will be responsible for the payment of debts both during
the relationship and if it dissolves
dividing a principal residence upon
breakup or at death
Lessens the likelihood of a battle over the family home if you break up
defining how children will be taken
care of in the event of dissolution
of the relationship
Provides guidance in the case of a breakup involving children by spelling out child support, custody and visitation rights; binding in marital
situations only, but valuable in nonmarital situations as well
choice of law
Helps to ensure that the cohabitation agreement can be carried out by
specifying a mutually agreed upon state that recognizes such agreements
10
Morga n S ta n le y
Legal tools that can help protect you
Despite differences in law, there are many financial and legal
tools you can use to protect yourself and those you love.
Creating a Cohabitation Agreement. A cohabitation agreement is a
legal contract between two individuals
who are living together in an intimate
relationship. It is designed to simulate,
as close as possible, the obligations and
rights that married people have toward
each other. The agreement typically details
the length of the relationship, includes
a statement of both partners’ assets and
liabilities and specifies whether their
assets and income should be treated as
separate or joint property. You and your
partner can also make specific provisions
that cover the distribution of assets in
the event of death or separation, financial support if one of you is the primary
breadwinner, responsibility for repayment of debts and support and custody
arrangements for your children.
Titling assets. Same-sex partners
should give careful consideration to how
their property is titled. If the home you
and your partner share is in your name
only, it will pass to the inheritors named
in your will or, if you have no will, state
law will govern who gets the property.
In the case of a will, others may contest
the will in its entirety, or some of its
provisions.
One way to avoid this problem is
to share ownership as “joint tenants
with rights of survivorship” (JTWROS).
A JTWROS title allows a surviving
partner to inherit property outright,
regardless of the terms of the will or
state law. Before creating a JTWROS,
you and your partner should consult
with a tax specialist to decide if this is a
good choice given your specific situation.
Designating beneficiaries. Naming your partner as the beneficiary of
an individual retirement account (IRA),
an annuity or a life insurance contract
is a simple way to make sure these assets end up where you want them in the
event of your death. Same-sex couples
are not entitled to their partner’s Social
Security benefits or, generally speaking,
their pension benefits. However, some
companies now offer pension benefits
to domestic partners.
Drafting a will. A will specifies to
what person, persons or charities everything you own goes upon your death.
It is essential to have one. In your will,
you can also name a guardian for your
children. This is important for samesex couples, particularly if you are the
biological or adoptive parent. Without
a will, the courts may choose a guardian
you did not intend, and your partner
may not be able to even visit your child
should something happen to you.
Ask for Advice
Given the complexity of
the legal backdrop and the
long term implications of
your decisions, it is wise to
seek professional advice.
Lawyers, Financial Advisors
and tax professionals are all
good sources of objective
guidance. You may want to
find a Financial Advisor with
the Accredited Domestic
Partnership designation.
These individuals have
studied the specific issues
domestic partners face with
regard to wealth transfer,
retirement planning and
federal taxation, among
other concerns. As with any
professional service, choose
someone you trust who
communicates clearly and is
responsive to your needs.
same-sex marriage and state law
States have made provision for same-sex couples in several different ways. Many
still limit marriage to relationships between a man and a woman, as federal law
does. Others allow same-sex couples to legally marry in the state and enjoy the
same rights as married heterosexual couples. Still other states allow partnerships
with full or limited rights, including civil unions, domestic partnerships, designated
beneficiaries and reciprocal beneficiaries.
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
11
2010
646,476 same-sex families4
313,599 male
332,877 female
2000
601,209 same-sex families5
304,148 male
297,061 female
1990
145,130 same-sex families5
81,343 male
63,787 female
12
MORgA n S tA n LE y
same-sex family
finances
with Health care expenses, employee benefits, income
taxes and the treatment of dependents — b uilding a
workable financial strategy requires navigating the
special considerations that apply to LGBT families.
As you and your spouse or partner deal
with the practical aspects of life together,
you will quickly encounter issues related
to taxes, health care, insurance and, if
offered to you, employee benefits. Then,
if you have or adopt children, other
questions will emerge. Every family
must deal with these issues to some
degree but, as a same-sex family, you
will face additional considerations. The
decisions you make can have a real and
immediate dollars-and-cents impact.
It’s important to understand all your
opportunities, as well as the attendant
responsibilities.
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
13
Shared resources and taxes
Under US law, almost any asset can be jointly owned by
two persons, with the exception of retirement accounts.
That means you have the opportunity to decide whether to
commingle your assets with your spouse or partner, or keep
your assets separate.
Allocating ownership for tax purposes. Income and expenses associated
Setting up Accounts
Some couples choose to
completely integrate bank
accounts and elect one
partner to be in charge of
the finances. Others opt to
maintain separate checking
or cash-management accounts — divvying up the
expenses and assigning each
partner specific financial
responsibilities. Another
idea is to create three bank
accounts — yours, mine and
ours. With the first two
accounts, each partner pays
personal expenses and any
other responsibilities. With
the shared account, you pay
for the expenses and investments you make as a couple
and for your family.
are paid directly to the service provider.
Your tax advisor can help you evaluate
whether you may be subject to gift taxes
and what you can
do about it.
with your holdings can be allocated in
whole or in part
to either of your
tax returns. How
Joint versus
Your tax advisor can help
you divide them
individual redepends on your
turns. When
you evaluate whether you
filing federal
respective tax
may be subject to gift
situations; the
returns, sametaxes and what you can
person with
sex partners can
do about it.
the higher tax
rarely be depenburden might
dents of each
want to claim
other and cannot
deductions for such things as mortgage file jointly. Each partner must file indiinterest and capital losses.
vidually — which can add substantially to
The gifting issues. Keep in mind that the combined tax burden of the couple.
the IRS considers some asset transfers Plus, in those states where a same-sex
between same-sex couples as taxable gifts. couple is entitled to file a married state
Gift taxes may be levied if one partner return, they must also file a “dummy”
gives more than $14,000 to the other married federal return with the state in
partner, unless the money is for certain order for their state taxes to be calculated
medical and educational expenses that properly and to appear correct.
Taxes and children
While you and your same-sex spouse or partner will not be
able to file a joint federal tax return, you can take advantage
of tax deductions available to all families with children.
For example:
•If you and your partner have a child •If one of you claims a dependent
and both of you qualify as legal parents, either biological or adoptive, you
can decide which of you claims the
child as a dependent on your federal
income tax return. One of you may also
be able to file as “head of household,”
which may help to reduce taxes. If you
have two children, you each may be
able to claim this status. Be sure to
discuss your options with a qualified
tax professional.
14
Morga n S ta n le y
child age 16 or younger on your return,
you may be eligible for a tax credit of
$1,000 per child. The credit is reduced
as income increases.
If you adopt children, one of you may
be able to claim an adoption credit of
up to $12,650 for qualified adoption
expenses for each eligible child in the
year that child is adopted. There are
income based limits and phaseouts, so
consult your tax professional.
•
what if you couldn’t work? If you are the primary breadwinner, it may
be wise to consider what could happen if you became ill or disabled.
1
2
Could you replace your income?
Can your partner make up
the difference?
3
How long would you be able
to pay your bills on one (or no)
income?
4
Disability insurance could
potentially replace a portion
of your income.
Factoring in the cost of health care
All families need to set aside money for major goals such
as buying a home, sending a child to college or retiring
comfortably. Same-sex couples may also need to make specific
provisions for health care expenses. To begin with, not every
employer will extend coverage to a same-sex partner.
According to the Human Rights Cam- sure you understand your company’s
paign’s 2012 Corporate Equality Index, specific policies.
89% of Fortune 500 employers extend
Coverage for children. Health
domestic-partner coverage to employees coverage for children often depends on
with same-sex partners. If your partner’s the relationship of the child to the ememployer does not provide coverage for ployee. If the employee is the biological
you, you can research whether or not or adoptive parent, then most employyou can purchase
ers will treat the
health insurance
child as they would
from your own emfor any other famHealth coverage for
ployer. You can also
ily. If your son or
children often depends
investigate the cost
daughter is your
of an individual
partner’s biological
on the relationship of
plan or one offered
or adoptive child,
the child to
through a group or
coverage will dethe employee.
association, which
pend on the terms
may be more cost
of your company’s
effective than an
policy.
individual plan.
COBRA coverage. The Consolidated
Coverage and taxes. Even if your Omnibus Budget Reconciliation Act
employer’s coverage does extend to (COBRA) gives former employees the
your partner, the value of the benefit right to temporary continuation of health
is counted as income paid to you and coverage at group rates. However, if
is included in your gross income by your company provides health insurfederal law. Some companies are now ance for both of you and you change
paying the added taxes or reimbursing jobs, your partner will not be eligible
employees for the added tax burden, for benefits under the federal governbut the practice is not yet universal. Be ment’s COBRA program.
Keeping current
Decisions regarding retirement assets (and many other financial matters) can be
complex and technical. Make
sure you seek the guidance
of a qualified advisor, particularly a tax attorney or certified public accountant, as
you consider various courses
of action. That’s especially
important at a time when
both state and federal laws
are in flux.
If you also want to monitor legislative developments
and planning strategies on
your own, online resources
available to you include:
• Lambda Legal —
www.lambdalegal.org. They
offer a range of updates and
publications that may help
you in planning.
• The Williams Institute
— www.williamsinstitute
.law.ucla.edu. Part of the
University of California, Los
Angeles Law School, the
institute tracks demographic
trends and legal developments across the US.
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
15
PlANNINg your
ReTiReMenT
AChIeVINg The FlexIbIlITY AND FINANCIAl
INDePeNDeNCe YOu WANT IN ReTIReMeNT WIll RequIRe
a Careful analysis of The benefiTs ThaT are — and
aren’T — aVailable To same-sex CouPles.
Successful retirement planning takes
place on several levels. At the macro
level, your plan needs to take account of
inflation, which can significantly erode
the purchasing power of your savings.
Then there are all the issues that are
unique to you and your family, including
16
MORgA n S tA n LE y
where you want to live, what you plan
to do and how much income you can
plan for. For many same-sex couples, the
support system presumed in retirement
and disability planning may not exist,
so ensuring financial independence is
essential.
your generation is likely to live longer in
retirement than any before it. that creates
more opportunities for enjoyment — and
more years to incur substantial costs.
70
after age 65, about 70% of
all individuals will need some
type of long term health care,
and more than 40% will need
nursing home care.7
2x
80s
On average, if you are a
65-year-old man, you will
live to be 82; if you are a
65-year-old woman, 85.8
Gay and lesbian individuals age
60 to 90 are more than twice as
likely to live alone.6
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
17
The realities of retirement assets
Retirement planning for same-sex couples is complicated
by the fact that your spouse or domestic partner will be
considered a nonspouse beneficiary under federal law in
almost every circumstance. The differences between spouse
and nonspouse can be mitigated somewhat by proper
beneficiary designation on accounts like 401(k) plans but,
under current laws, you need to take differences in
distribution and taxation rules into account in your planning.
LGBT Retirement
Communities
Currently there are about
25 existing or planned
gay and lesbian retirement
communities. Many adults
over 50 choose these
communities because
they desire:
To be independent from
their families
To increase social
opportunities
To be in a community
of people with similar
lifestyles and interests
Beneficiary designation. If you have a
401(k) and 403(b) plan or an IRA, assets
in the account at your death will pass to
the beneficiary you designate in the account documents. If you do not designate
a beneficiary, unless the plan or IRA documents provide differently, the assets will
become part of your estate and distributed
according to your will. If you have no will,
the state will determine who receives the
assets, which may well not be your partner.
In either case, assets will be subject to the
probate process. Be sure to review your
beneficiary designations regularly, and
make adjustments whenever required by
changes in your family situation.
IRAs. Rules regarding the rollover of
inherited IRA assets were liberalized in
2007 but still provide less flexibility than
that accorded under spousal rules. For
example, your same-sex spouse or partner
may roll over assets that pass to him or her
as beneficiary to another IRA, helping to
protect the tax-advantaged status of the
assets. However, distributions cannot be
delayed until the beneficiary reaches age
70½ as is the case of a federally recognized
spouse. Your beneficiary will have to begin receiving distributions immediately.
401(k) assets. Assets in 401(k) plans
are now governed by rules similar to those
covering IRAs. As of 2010, a same-sex
spouse or partner, while still considered a
nonspouse beneficiary under federal tax
law, can protect the tax-deferred status of
plan assets by rolling them over into an
IRA. Still, just as with assets rolled over
from an IRA, your beneficiary must begin
taking distributions immediately, without
the option of waiting until age 70½.
Social Security. Your same-sex spouse
or domestic partner will not qualify as a
spouse under current federal law. That
means your Social Security benefits will
cease upon your death. Likewise, should
your partner die first, you will no longer
receive benefits as you would if spousalcontinuation rules applied.
how inflation erodes retirement savings. Here’s what happens to the purchasing
power of $1 million, assuming the historical 3.5% inflation rate, over 10, 20 and 30 years. Put
another way, you would need $2.81 in 30 years for every $1.00 of purchasing power held today.9
2012
$1 Million
18
Morga n S ta n le y
2022
$708,918.81
2032
$502,565.88
2042
$356,278.41
The long term care (LTC) question. Long term care includes
services provided to anyone with a chronic disease, disability or
sudden illness who requires assistance with “activities of daily living”
(ADLs) such as eating, bathing, dressing or moving from a bed to
a chair. It also includes supervision of individuals with Alzheimer’s
disease and other mental illnesses usually associated with aging.
LTC is expensive, and getting higher every year, as this table shows:
years of care
today
10 years
20 years
1
$77,745
$120,608
$196,458
2
$245,091
$380,217
$619,333
3
$429,590
$666,425
$1,085,553
Figures in the table were computed by Genworth based on information from the 2011 Cost of
Care Survey and represent room costs for an individual. Conducted by CareScout(R) 04/11.
These costs can rapidly erode even well funded retirement plans, leaving you,
your partner or your children facing major, unexpected expenses. Given the
magnitude of the potential costs, an increasing number of people are making
LTC insurance a part of their retirement plan, and it is clearly something that
same-sex couples may want to consider.
HIV, LTC and insurance
An HIV-positive status complicates LTC and other insurance
coverage. If either you or your partner is HIV-positive, you
should be aware that:
When your business
partner is your life
partner
If you have a family business, you may want to consider a partnership agreement that protects you
and your partner legally.
Your Financial Advisor can
work with your attorney to
help maximize the benefits
to which gay and lesbian
business partners are entitled. For business owners
whose gifts or estate plans
might be challenged by
other family members, the
business partnership may
also provide a recognized
relationship to strengthen
those plans.
It is illegal for an LTC services provider coverage as part of their group benefits
to discriminate against an HIV-positive plans. In such situations, the coverage is
person, denying care solely because of usually available on an open-enrollment,
HIV. Only when speno-underwriting basis
cific circumstances
to all applicants. If you
Increasingly,
are met — conditions
are HIV-positive and
employers are offering
that apply to all pawork for such a comLTC coverage as part
tients — can the right
pany, you may want to
of their group benefits.
to care be denied.
consider this option.
It is legal for an
Questions regarding
insurance company,
unlawful discriminaunder preexisting-condition rules, to tion, insurance coverage and employee
decline the application for LTC insur- benefits are complex and vary from inance by an HIV-positive person, making dividual to individual. Be sure to discuss
this insurance difficult to purchase for with a qualified legal advisor if you have
many individuals.
questions about the rules or believe you
Increasingly, employers are offering LTC have been discriminated against.
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
19
CONTROllINg
your
LeGacY
YOuR legACY IS The OPPORTuNITY TO
PASS ON The MATeRIAl ReWARDS OF YOuR
lIFe IN The WAY ThAT beST FulFIllS YOuR
gOAlS AND ReFleCTS YOuR VAlueS.
There are many reasons to create an
estate plan. The most common is to
help ensure that your property passes
to the people you wish to benefit in the
way you desire. The same is true for
gay and lesbian couples, but the complex and evolving legal environment
sometimes presents added challenges.
Proper planning can’t reconcile all the
differences between federal and state
laws, but significant opportunities exist
to enhance control and minimize taxes,
conflicts and costs.
20
MORgA n S tA n LE y
Many of the traditional estate planning
tools and strategies take on a new dimension of importance for same-sex couples.
For example, trusts and gifting can add
a level of certainty to your planning, helping to minimize family issues by providing
clarity while greatly reducing the risk
of potential legal disputes. By defining
your goals and working with a qualified
lawyer, accountant and Financial Advisor, you can achieve a high degree of
confidence that your wishes will be carried out.
Estate planning holds many benefits,
including comfort for you because
you can have confidence that your
assets will go to the people and
causes you intend.
4.
1.
Lessening tax
burdens
Fulfilling
charitable and
other goals
5.
Avoiding family
conflict
2.
Avoiding potential
reductions in your
net worth
6.
Retaining
control over
your wealth
3.
Speeding up
settlement of
your estate
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
21
A fundamental tool:
The revocable living trust
The revocable living trust is the most popular trust vehicle
used today and probably the most basic. As the name
suggests, it’s a legal arrangement made during your life for
the purpose of managing and passing on assets. You can
use it to involve your partner or spouse in the management
of your finances and investments should you become
incapacitated, and to ensure that your assets pass to your
partner or spouse upon your death.
The key word in revocable living trust
is revocable. As grantor, you can make
changes to or terminate a revocable living trust at any time. At your death,
the trust becomes irrevocable and
the instructions you indicated in the
trust document are carried out by the
trustee. Those instructions can include
distributing the assets to your partner,
spouse or others. Even though assets
funding your revocable living trust are
now owned by the trust, you, as grantor,
retain control. This includes amending
the terms and provisions of the trust
and changing the trustee, beneficiaries
and asset management approach.
Assets you place in the trust are managed
by the trustee you choose. Many people
who have revocable living trusts name
themselves as trustee. This is perfectly
legal and appropriate for many situations. Alternatively, a third-party trustee
can manage the assets with input from
you for the benefit of the beneficiaries.
It is very important that you choose a
qualified and capable current or successor trustee to ensure that the trust
provisions are carried out properly.
Assets in a revocable living trust avoid
the public disclosures of probate — a
major reason why individuals establish revocable living trusts — a nd are
often distributed more quickly and on
a confidential basis.
A sampling of what trusts can do
your goal
consider
benefit
reduce estate taxes
Charitable trust
Supports charitable organizations while
offering tax benefits and estate planning
advantages
Qualified personal residence
trust (QPRT)
May remove the value of your home from
your estate while you continue to live in it
provide support for children
Minor’s trusts
Allows greater flexibility and control than
direct gifts, and possible tax savings
solidify financial support for
surviving spouse in complex
family situations
Qualified terminable interest
property trust (QTIP)
Provides for lifetime support for surviving
spouse while allowing control of ultimate
distribution of assets. May be applicable for
state tax deduction. Contact your tax advisor
for more information.
“freeze” the value of
appreciating assets for
estate tax purposes
Grantor retained annuity
trust (GRAT)
Locks in asset value on date of transfer to
trust, and appreciation is passed to beneficiary free of estate taxes
22
Morga n S ta n le y
The basic documents
Lesbian and gay couples may need to be more aggressive
than other couples in planning for the management and
disposition of assets, both during their lifetimes and at
death. As a result, certain strategies and documents may
take on greater importance for you, and you should discuss
the following with an attorney:
your will. Discuss a “no contest”
clause to prevent challenges from family members.
living will. This legal document
instructs health care professionals about
your wishes regarding life-sustaining
procedures in the event you become
terminally ill.
medical durable power of
attorney. Also known as a health care
proxy, this document allows you to name
a person to act as your representative
to make health care decisions on your
behalf if you become seriously ill and
are unable to make these decisions for
yourself. In the absence of a health
care proxy, the closest blood relative
will generally be given the authority to make these decisions. Without
this document your partner can be
left standing on the sidelines while
medical decisions are made.
financial durable power of
attorney. Like a health care proxy,
a financial durable power of attorney
authorizes another person to act as
your representative to make financial
decisions on your behalf.
guardianship appointment.
Appointing a guardian helps ensure
that the person you prefer assumes
responsibility for a child upon your
death. Keep in mind that guardianship does not override the rights of a
biological parent.
Six questions that can
help you plan effectively
1
Who should benefit
from your estate?
2
Is your partner or
spouse financially
dependent on you?
3
If children are involved,
who has custody? Who
will be the guardian?
4
Do you wish to treat all
the children equally?
5
Do you have specific
goals for certain
beneficiaries?
6
Do you wish to leave
any portion of your
estate to a charitable
organization?
domestic-partnership agreement. As a useful planning alterna-
tive, this agreement is a legal contract
outlining the distribution of assets upon
termination of the relationship prior
to death.
Beneficiary Designations.
As described earlier, review any retirement, insurance or other beneficiary elections to make sure wishes
are respected.
The power and satisfaction of gifting
One way — perhaps the best way — to ensure that your assets
are transferred as you intend is to make a lifetime gift. Making
full use of the available estate and gift tax exemptions and
exclusions is especially important for domestic partners or
married gay or lesbian couples, who do not receive the same
benefits under the law as do married heterosexual couples.
When you consider gifting, keep in mind
that: You can make annual gifts to your
partner, spouse and/or children directly
or in trust for their benefit — up to $14,000
per year ($28,000 for a married couple)
to each of as many beneficiaries as you
wish. Gifts greater than $14,000 ($28,000
for married couples) will be subtracted
from the individual or couple’s lifetime
gift tax exemption and subject to tax.
Under the American Tax Payer Relief
Act of 2012, the federal estate and gift tax
exemption is $5 million for an individual
and $10 million for a married couple.
These amounts are indexed for inflation
making the exemption for individuals
$5.25 million and $10.5 million for married couples in 2013.
In 2013, you could give your partner or
spouse a tax-free gift of up to $5 million,
and you and your spouse could transfer
up to $10 million to children or a trust.
Additionally, there is an exclusion for
gifts made under the medical and educational expense provision of the Internal
Revenue Code. These transfers must be
for medical expenses or tuition and must
be made directly to the health care provider or educational institution. There is
no dollar limit for this exclusion.
J U LI A A . PELOSO, CF P ®, A DPA®, CRPC®
23
Certified Financial Planner Board of Standards Inc. owns the certification
marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP
(with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
Morgan Stanley Financial Advisors do not provide tax or legal advice. This
material was not intended or written to be used for the purpose of avoiding
tax penalties that may be imposed on the taxpayer. Clients should consult
their tax advisor for matters involving taxation and tax planning and their
attorney for matters involving trust and estate planning and other legal
matters. Morgan Stanley Smith Barney LLC offers a wide array of brokerage and advisory services to its clients, each of which may create a different
type of relationship with different obligations to you. Please contact us to
understand these differences.
Morgan Stanley Smith Barney LLC is a registered brokerdealer, not a bank.
Where appropriate, Morgan Stanley Smith Barney LLC has entered into arrangements with banks and other third parties to assist in offering certain
banking-related products and services. Unless otherwise specifically disclosed
to you in writing, investments and services offered through Morgan Stanley
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, banks and involve investment risks, including possible loss
of principal amount invested.
Asset allocation and diversification do not guarantee a profit or protect
against loss.
Tax laws are complex and subject to change. This information is based on
current federal tax laws in effect at the time this was written. Morgan Stanley
Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors
do not render advice on tax and tax accounting matters to clients and are
not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise)
with respect to the services or activities described herein. This material
was not intended or written to be used, and it cannot be used by any
taxpayer, for the purpose of avoiding penalties that may be imposed on
the taxpayer under U.S. federal income tax laws. Clients should consult
their own legal, tax, investment or other advisors, at both the onset of any
transaction and on an ongoing basis to determine the laws and analyses
applicable to their specific circumstances. Clients should consult their
tax advisor for matters involving taxation and tax planning and their
attorney for matters involving trusts, estate planning, charitable giving,
philanthropic planning or other legal matters and before establishing a
© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.
retirement plan or to understand the tax, ERISA and related consequences
of any investments made under such plan.
This material does not provide individually tailored investment advice. It
has been prepared without regard to the individual financial circumstances
and objectives of persons who receive it. The securities discussed in this
material may not be suitable for all investors. Morgan Stanley recommends
that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The
appropriateness of a particular investment or strategy will depend on an
investor’s individual circumstances and objectives.
Insurance products are offered in conjunction with Morgan Stanley’s
licensed insurance agency affiliates.
http://www.lambdalegal.org/publications/nationwide-status-same-sexrelationships
2
Same-sex couples who married in 2008 remain married; same-sex marriages
halted by Proposition 8 in November 2008. Broad domestic partnership law
still in effect.
3
Same-sex marriage subject to voter referendum in November 2012. Earlier
laws remain in effect.
4
http://williamsinstitute.law.ucla.edu/wp-content/uploads/Census2010Snapshot-US-v2.pdf
5
“Gay and Lesbian Families in the United States,” Tax Policy Center, Urban
Institute and Brookings Institution. August 22, 2001. http://www.taxpolicycenter.org/publications/urlprint.cfm?ID=1000491
6
“Aging as Ourselves: LGBT Aging Health Issues for Health Care Providers,”
page 21. Loree Cook-Daniels, 2008. http://www.dvsacmiami.org/Resources/
Complete%20curricula%20text%20with%20references.pdf
7
National Clearing House for Long Term Care Information, http://www.longtermcare.gov/LTC/Main_Site/Understanding/Definition/Know.aspx
8
Social Security Actuarial Life Table
9
Morgan Stanley, Financial Planning Group
1
CRC625294 (03/2013) 7491981 04/2013 CA Ins Lic #0F46909 CS 7472485 04/13