Special Needs Trusts

General Information on Special Needs Trusts.

A “Special Needs Trust” is a trust established by a disabled person with their own money (usually an inheritance, accident settlement or drug or malpractice settlement).  The purpose of this trust is preserve the money to use to supplement the government benefits the disabled person receives without disqualifying the disabled person from eligibility for such governmental benefits.  These trusts are authorized by statute but have important restrictions.  The purpose of this article is to describe some of these restrictions.

Important Restrictions on Special Needs Trusts.

There are important restrictions on Special Needs Trusts and the powers of the Special Needs Trust Trustee.  In general:

• The trust must be irrevocable.  The Trustee cannot just decide to terminate the trust.  It is normally best to spend all the money in the Trust on the beneficiary, rather than try to terminate the Trust.

• The trust assets can only be spent for the sole benefit of the disabled person.  It is not acceptable to make gifts to others or to pay for gifts to others even if that would please the disabled person.  Nor is it acceptable to pay for someone to go somewhere with the disabled person, eat with them etc. unless a doctor certifies that it is medically necessary.  Even then the amount paid must be reasonable.

• Distributions can only be made by the trustee purchasing items or services directly from a third party on behalf of the disabled person.  No cash or cash equivalents can be given to the disabled person, even to reimburse the disabled person for expenditures.

• The money in the trust should not be used to replace or duplicate money that a governmental program would otherwise provide.

A Special Needs Trust Trustee should determine what governmental programs the disabled person is on or could qualify for and what the asset or income rules are that would disqualify the disabled person from that program.  For instance, Supplemental Social Security requires that the person’s assets must be under $2,000, exclusive of tangible personal property and a homestead.

Regular periodic payments from the Trust may count as income under some needs based programs like public housing.  If the person is in public housing, the distributions are not prohibited but will reduce the disabled person’s benefit. Some housing programs count all distributions, not just periodic ones, as income and you may need to be prepared to contest the rent increase.  So, the Trustee needs to make sure that the Trustee does nothing to disqualify the disabled person from any given government program or is at least mindful of the consequences of distributions. 

The Special Needs Trustee needs to ascertain what benefits the disabled person can obtain from the government.  For instance if the disabled person would qualify for a wheel chair through Medical Assistance, the Trustee should not purchase the wheel chair using Trust funds but rather help the disabled person get the wheel chair from the government program.  If the disabled person wants extra features, it is legitimate for the Trust to purchase those features.

A very important limitation on Special Needs Trusts, is that if the disabled person receives Supplemental Social Security, the assets of the Special Needs Trust cannot be used to pay for shelter or food.  If the disabled person has a home or apartment, the Trust can pay for a hotel while the disabled person is traveling.  But the Trust cannot pay for the disabled person to stay in a hotel all the time.  An occasional meal at a restaurant or while traveling can be considered entertainment.  But the trust cannot pay for the person to eat in a restaurant regularly.  It is safest to avoid paying for restaurant meals as much as possible.

The Special Needs Trust restriction that often poses the biggest problem is the prohibition against giving money directly or indirectly to the beneficiary.  All payments from the trust have to go to third party vendors to purchase goods or services.  It is not acceptable for the disabled person to buy a computer and bring the receipt to the Trustee for reimbursement.  The Trust has to buy the computer directly from the store.  This may seem like a silly rule and like it glorifies form over substance but it is an important rule and is strictly enforced.

What is acceptable:

·         Check written from the Trust to the vendor.

·         Trustee putting the purchase on the Trust’s own credit card.

·         Allowing a high functioning disabled person to buy things using the disabled person’s own credit card but submitting the statement and receipts to the Trustee who then pays the Credit Card Company directly (but only for items that the Trust can pay for under the rules of the programs that the disabled person is on).

What is not acceptable:

·         Giving cash to the disabled person.

·         Giving cash to someone other than the disabled person without getting receipts or before an item is purchased.

·         Arranging for the disabled person to have a gift card or unrestricted debit card.

Disclaimer Trusts

General

            You have been named as Trustee for a Disclaimer Trust.  A Disclaimer Trust is a trust that is provided for in a person’s will or revocable trust.  The beneficiary is the decedent’s surviving spouse.  However, whether the trust comes into existence depends on an election that the decedent’s spouse makes after the decedent’s death.  This election is called a “Disclaimer.” If the decedent’s spouse does not execute a Disclaimer, the Disclaimer Trust never gets set up and usually the decedent’s assets go outright to the surviving spouse.

            The reason for providing for the option of a Disclaimer Trust is to minimize estate taxes.  Estate taxes are supposed to be a tax on the rich.  So both the federal estate tax and the Minnesota estate tax laws, provide that if the estate is under a certain amount (the “Exemption Amount”), it is not subject to estate tax. 

            Each person has an Exemption Amount.  Federal estate tax law has a concept called “portability” that allows the surviving spouse to use the decedent’s Exemption Amount as well as the surviving spouse’s when the surviving spouse dies. So Disclaimer Trusts are not needed to avoid federal estate taxes.  However, Minnesota tax law does not have the portability concept.  The Disclaimer Trust is a substitute.

            To try to preserve the decedent’s Exemption Amount, the surviving spouse executes a Disclaimer for assets up to decedent’s Exemption Amount.  Those assets then go into the Disclaimer Trust and on the death of the surviving spouse go where the Disclaimer Trust provides that they go.  However, these assets are not taxed because they count for tax purposes as coming from the decedent, not the surviving spouse. What this usually means is that on the death of the surviving spouse all the assets in the Disclaimer Trust plus up to the Exemption Amount in the estate of the surviving spouse go to the family without paying Minnesota estate taxes.

            However, since the surviving spouse is the beneficiary of the Disclaimer Trust during the surviving spouse’s life time, the assets in the Disclaimer Trust are still available to be used to take care of the surviving spouse.  By executing the Disclaimer to fund the Disclaimer Trust, the surviving spouse subjects those assets to control by the Trust but does not absolutely give up having the assets available to take care of the surviving spouse.  

            The following are the normal duties and powers of a Trustee.

General Duties of a Trustee

Duty of Loyalty: A trustee must administer the trust solely in the interest of the beneficiaries, both life time and ultimate beneficiaries (the ultimate beneficiaries are called “Remaindermen”).

Duty to Collect and Protect Trust Property: A trustee has the duty of obtaining possession of the trust property without unnecessary delay.  Once having obtained the trust property, a trustee must act as a prudent person in preserving the trust property. 

Duty to Earmark Trust Property: The trustee must earmark the trust property by properly identifying the property as trust property.

Duty Not to Mingle Trust Funds with Trustee=s Own: The trustee must keep all trust property separate from the trustee=s own property.

Duty Not to Delegate without Care: A trustee may delegate to any person any trust function that a prudent person of comparable skill could properly delegate under the circumstances.  However, the trustee must exercise reasonable care, skill and caution in selecting an agent, establishing the scope and terms of the delegation and must periodically review the agent=s actions. 

Duty of Impartiality: A trustee has a duty to deal with both the life time beneficiary and the Remaindermen impartially.  The trust property must produce a reasonable income while being reserved for the Remaindermen.

Duty to Inform and Account to the Beneficiaries: The trustee is under a duty to the life time and Remaindermen beneficiaries to give them upon their request at reasonable times complete and accurate information as to the nature and amount of the trust property, and to permit them or a person duly authorized by them to inspect the subject matter of the trust and the accounts and vouchers and other documents relating to the trust.

Normally, this will result in the Trust preparing an Inventory of the assets in the Trust at the beginning of the Trust Administration.  Periodic accountings showing where the money is being spent, income being received and assets still on hand may be required depending on how long the trust lasts.  At the end of the Trust Administration, the trustee should prepare and furnish the beneficiaries with a Final Account.

Other Duties:  The Trustee also has the obligation to file any necessary income or estate tax returns.  The Trustee has to pay the bills of the Trust and the trust document may require payment of beneficiary’s bills.

General Powers of a Trustee

Specific Powers:  The specific powers given to a trustee are listed in the trust and in Minn. Stat. ' 501C.0809-0817.

Discretion as Trustee: The trust agreement may give the Trustee discretionary power.  This allows the Trustee to determine whether to distribute income or principal and how principal shall be invested.

Trustee=s Power to Resign: Any trustee may resign at any time by delivering a written resignation to the remaining Trustees, with the resignation becoming effective 30 days following its delivery.

Signing Your Name: In transacting business, it is important to make clear that the Trustee acts as trustee, not as a person. The best way to do this is for the Trustee to sign as follows:

Trust of John Smith

under Agreement dated 1/1/2001

by Jane Smith, Trustee

Alternatively, if the document is already clear that it is the trust that is involved, the Trustee would sign:

Jane Smith, Trustee

Specific Issues for Disclaimer Trustee

            Any time there is a lifetime beneficiary and Remaindermen, there is a conflict of duties for the Trustee.  This is especially true if, as is often true of Disclaimer Trusts, the life time beneficiary is to be paid any income.  Should the assets be invested so as to produce more income or more appreciation?  Should the trustee pay a given bill for the benefit of the life time beneficiary or save the money for the Remaindermen?

            This conflict of duties makes it most important that the Trustee keep good communication going with all beneficiaries and, if at all possible, operate by consensus.  Documenting consent by all is always prudent.  If it is not possible to operate by consensus, it may be worthwhile to ask for court approval of controversial actions.

            Since the point of the Disclaimer Trust is to minimize estate taxes, administering the trust so that the surviving spouse’s assets are kept below the Minnesota Exemption Amount can provide some guidance on how to resolve the conflict of duties.   Often the Remaindermen are also children of the surviving spouse and may help make the conflict of duties more apparent than real.  However, with families that have unresolved issues or a second marriage, the conflict of duties may be very real.

1/Forms/Wills/DisclaimerInstructTrustee

What is probate?

Periodically I have a client who says to me, “Since I have a will, my estate does not have to go through probate, right?”  The answer is, “No, your estate may still have to go through probate.”

The word probate comes from the Latin word “probare” which means “to prove,” or “to test”  It is a process that we go through to make sure that bills of the decedent are paid and the heirs/devisees get clear title to the remaining assets.  Having a will just instructs us what to do with the assets.  It does not avoid the process.  If there are liquid assets worth over $50,000 or real estate solely in the name of the decedent, then there will be a probate proceeding.

It is possible to avoid probate.  Common mechanisms for doing this are (i) to own property in joint tenancy with right of survivorship, (ii) name a beneficiary on an account or insurance policy, (iii) make a stock or stock brokerage account TOD (transfer on death) or an bank account or bond POD (pay or payable on death) or (iv) use a TODD (transfer on death deed) for real property.  For all assets subject to such mechanisms, the will is irrelevant.  What the title paperwork says to do will be what happens.  By using such mechanisms, you have converted what would otherwise be a probate asset (governed by the will) into a non probate asset.

However, the ability to do anything very complex using such mechanisms is limited.  It is difficult to protect people from themselves or deal with minors or plan for multiple contingencies with non probate mechanisms.  Also since even with these mechanisms there may be bills that have to be paid, getting co-operation among the people getting assets to get the bills paid may be very difficult and more expensive than a simple probate.  The best mechanism to avoid probate and still deal with such issues is to create a revocable trust (commonly called a living trust) during your lifetime and put your assets in that trust.  While you are alive, you are usually the trustee and the beneficiary.  On your death we follow the directions in the trust but you have the same flexibility that you have with a will for leaving complex instructions and gifts in trust.  After your death we do this through a trust administration, not a probate. In New York, California and Florida the difference between a trust administration and a probate is huge.  In Minnesota, the differences are small but there still are differences.

Glick. "Jest Is For All." Bench & Bar of Minnesota Mar. 2015: 4. Print.

Which is better: to do a transfer on death deed or convey property to relatives during your life time?

The difficulty in comparing these two procedures is that each is designed to address a different issue.  In the following discussion the person who currently owns the property is called “grantor” and the person to whom the property would be transferred is called “grantee.”

Transfer on Death Deed

The principal purpose of a Transfer on Death Deed is to avoid probate. 

A transfer on death deed is a conditional conveyance of real property with the conveyance only taking effect upon the grantor’s death.  Once the grantor passes away, the property is transferred to the grantee by filing an affidavit with the county.  It is possible to do a transfer on death deed that takes effect only on the death of both joint owners.  It is also possible to have more than one grantee.

Advantages of a transfer on death deed are that the conveyance can be revoked; the grantor maintains complete control of the property during the grantor’s lifetime; and the property is transferred to the grantee without the need for a probate proceeding.  

In addition, the property passes to the grantee with a “stepped up” basis which is equal to the value of the property as to the date of death of the grantor.  If the property is sold at that time, the tax obligation to the grantee will be little or none. Since the grantee has no interest in the property until the grantor dies, if the grantee gets into financial difficulty, the grantee’s creditors cannot attach the property until after the grantor dies.  If the grantor knows about the financial difficulty, the grantor can revoke the transfer on death deed and make other arrangements that would protect the grantee from the grantee’s creditors.

The big disadvantage of a transfer on death deed is that it cannot be used to avoid paying for the cost of nursing home care.  As the conveyance of the property only occurs upon the death of the grantor, the county may consider the homestead an available asset and force the sale of the property if the grantor is no longer living in the home or the county may assert a claim against the homestead upon the death of the surviving spouse of the joint grantors.

Medical Assistance Planning/Transfer of Property

The principal reason people consider transferring property outright is usually medical assistance planning.

In order to protect property from being sold to pay for nursing home care or avoid a medical assistance claim from being asserted upon death, the property must be transferred to the grantee outright and more than five years must pass before any application is made for medical assistance on behalf of the grantor.  This 5 year period is called a “look back” period.  Any application made before the expiration of the 60 months–even by one day–will trigger the Medical Assistance ineligibility rules. During the ineligibility, the grantor must pay for the grantor’s own care.  The county can also require that the value of the asset transferred be transferred back.

The main advantage of transferring title to a grantee now is that, if the grantor satisfies the five year look back period, the property will pass to the grantee or grantees without being subject to a medical assistance claim. 

There are several disadvantages to putting someone in title to assets now.   The main concerns are as follows: 

1. After the time the deed is signed, the grantor no longer owns the property. Instead, the grantee owns it.  Each grantee has a right to sell or transfer his/her share of the property.

2. Even if the grantor does not put the grantee’s spouses in title, under real estate law, for any sale or mortgage, the grantee’s spouse will have to sign the documents. So, if the grantee decides to mortgage or put a lien on the property for some purpose, such as to fund repairs or improvements, the lender is going to require that not only the grantee, but also the grantee’s spouse, sign the mortgage or lien.

3. If the grantor wants to sell or refinance the property, the grantor must have the cooperation of all the grantees and their spouses.  Legally any proceeds are not the grantor’s but belong to the grantees.

4. Because the grantee owns the home, creditors of the grantee can attach the grantee’s interest and force a sale of the home.  Any proceeds that would otherwise have gone to the grantee go to the creditor.

5. If the grantor retains a life estate in the property, then a portion of the property is subject to Medical Assistance claims.  In order to avoid the County arguing that the grantor retained a life estate in the property, the grantor would have to pay rent for the grantor’s use on the property.

6. Since the grantor no longer owns the property, the grantee has more control over the decision of whether the grantor is healthy enough to continue living in the property.

7. If one of the grantees dies without a will, the grantee’s heirs will inherit that interest. If that heir is married, then the spouse of the heir would have to consent to any sale or mortgage.

8. ALL GIFTS made during the look back period count in the Medical Assistance calculation. So if  a grantor gives his/her children the grantor’s $250,000 house and sometime next year the grantor gives one of the children $20,000 to help with their unexpected financial problems, Medicaid will use $270,000 in calculating the grantor’s ineligibility during the overlapping look back periods.

9. If a grantor has a mortgage on the house and it has a due on sale clause (almost all mortgages do), the grantor’s lender has the right to call in the loan if the grantor transfers an interest without the bank’s permission.  That includes an outright gift of the house to relatives but not a transfer on death deed.

10. There are gift tax consequences if the grantor gives property worth more than the annual exclusion amount in any one year (currently $14,000).  Since everyone has a lifetime/death exemption of over 5 million dollars, the grantor may not have to pay a gift tax but the grantor still has to file a gift tax return.

11. If the house is gifted to the grantee without any retained interest in the grantor, there will be a carryover of tax basis to the grantee instead of a stepped up basis as would have been the case had the grantor died owning the property.  Between Federal and State taxes, that tax could be more than 20% of the gain in the home.  Depending on how much the property has increased in value while the grantor has owned it (the amount of the gain), it may not be advisable to do the gift. 

12. The grantee will not be eligible for the income tax exclusion for a primary residence when the grantee sells it if the grantee does not live in the house.

13. Although in Minnesota property that is gifted to one spouse is considered non marital property in the event of divorce, it is possible for the other spouse to make a claim against non marital property if that spouse has a need for assets or income.  This idea of non marital property is also not accepted in all states.  So, if a grantee gets a divorce, the property may be considered in making the property settlement, and the house may possibly be awarded to the grantee’s spouse.

You may also want to look at our page that discusses Medical Assistance and Homestead Property.

If I or my spouse goes on Medical Assistance, will we have to sell our home?

It is very common for clients to call and be worried that if they or their spouse has to go into a nursing home, the County will take their home away from them.  This is not the way Medical Assistance works.

First, the County does not take assets away from people who apply for Medical Assistance.  What the County does is say that it will not start paying bills for nursing home care until certain income and asset criteria are met. 

Second, the rules for what an applicant can keep classify a homestead as exempt as long as one of the spouses resides there. As long as you or your spouse is living in the home or has a reasonable expectation that you can return to the home, the County cannot force the sale of the home.    

However, when neither of you is living in the home, then the County can force a sale.  Also, if one of you has been living in the house and dies while the other is in the nursing home or after the other has already died, the County also can assert a lien against the home to pay for expenses the County has incurred for either of your care.  

Should I put my home in a living trust?

Part of the motivation for doing a living trust is usually to avoid probate.  Leaving the house outside the trust can defeat this purpose. 

However, a homestead in Minnesota is exempt from claims of the owner’s creditors up to a dollar amount established by Minn. Stat. S 510.02.  As of July 1, 2014 this exemption amount is $390,000.  Also the homestead is exempt from claims by Medical Assistance as long as the owner or the spouse is residing in the home.  Putting the home in a living trust destroys these benefits.

If the home is owned as joint tenants with rights of survivorship by a married couple, it is fine to leave the home outside the trust as long as both are alive.  On the death of the first it will transfer to the survivor without requiring a probate. 

But what to do if the spouse dies or a single individual owns the home.  In this situation, the answer may be a Transfer of Death Deed (TODD).  If the owner or tenancy owners file a TODD, then the home will be transferred on death to the persons named as grantees in the TODD without requiring a probate.  So the home can be left outside the trust but probate is still avoided.

TODD’s are not as flexible as trusts and so naming people as grantees is sometimes not advisable.  But the trust can be the entity named as the grantee of a TODD and then all the benefits of the Trust’s flexibility are available and probate is still avoided.

What is a Supplemental Needs Trust?

A ”Supplemental Needs Trust” is a trust established and funded by a third party to provide for the supplemental needs of a disabled person while allowing the beneficiary to maintain eligibility for various “needs based” government programs.

Many disabled people can qualify for various programs like Supplemental Social Security and Medical Assistance, which exist in order to provide a basic level of societal support.  However most of these support programs are “needs based,” meaning if you have too much income or too many assets, you cannot qualify for the programs. 

The income and asset limitations used to create a problem for parents and other relatives of disabled children who wanted to pass money or assets to those children in their wills.  If the disabled child received the gift, the child was disqualified from government benefits until the money or assets were spent down.  Many felt that this was unfair, as a non-disabled child receiving the same gift would be free to use the gift to supplement their lifestyle.

As a result, both Minnesota and the federal government passed Supplemental Needs Trust statutes allowing a third party to establish a trust for a disabled person without causing the disabled person to lose benefit eligibility.  The disabled person is then allowed to use the trust’s funds to provide for expenditures that the publicly funded programs would not pay.

Nearly anyone besides the disabled person or the disabled person’s spouse can create a Supplemental Needs Trust for a disabled person.  This trust can be set up in a will (called a testamentary trust) or outside the will.  In practice, it is generally preferred that the trust is created while the person funding it is alive because this provides greater flexibility in the trust, protection against potential changes in the law, and the ability for others to then place funds into the trust.

It is important to remember that a Supplemental Needs Trust may not be funded with money already legally owned by the disabled person, even if they have not yet received it.  However, in such a case, there are slightly different options available (for example, a Special Needs Trust).

A Supplemental Needs Trust must be irrevocable and solely for the benefit of the disabled person.  The money cannot be distributed directly to the disabled person.  Distributions can only be made by the trustee purchasing items or services directly from a third party on behalf of the disabled person.  The money in the trust may not be used to replace or duplicate money that a governmental program would otherwise provide.  If the disabled person receives Supplemental Social Security, the money cannot be used for shelter or food.  Use for clothing may also be problematic. 

Establishing a Supplemental Needs Trust is relatively easy for an adult who has been certified as disabled.  However, the same process can be more difficult for young children and others who have not yet received disability certification.  In such a case, it is possible to obtain a review process through the state to get an equivalent certification or have two professionals who have examined the person certify that the person meets the social security disability standard. 

If the beneficiary is 65 or older and has to go into a nursing home for an extended period, the trust will no longer protect the assets.  Most Supplemental Needs Trusts contain provisions that terminate the trust at that point.  On termination of the trust, the trust can provide where the remaining money or assets are distributed.

If you are interested in creating a Supplemental Needs Trust, or discussing your other financial planning options, please contact Tarrant & Liska.  

What is a Special Needs Trust?

A “Special Needs Trust” is a trust established to benefit a person with a disability. The purpose of this trust is to supplement the government benefits they receive without disqualifying the disabled person from eligibility for such benefits.

Disabled people can qualify for various government programs that help with their support, such as Medical Assistance, Supplemental Disability Income, and more.  Most of these programs are “needs-based,” meaning that the recipient must meet income and asset limitations to qualify.

Occasionally, a disabled person who is receiving government benefits may suddenly receive money, perhaps through an inheritance or a settlement due to a car accident or a medical malpractice suit.  This additional money can impact program eligibility.  However, Minnesota allows the creation of a Special Needs Trust, where the disabled person may place the money that they have inherited or received.  The money in this Trust is disregarded for the purposes of determining whether the person qualifies for the governmental programs.  However, the money is still there to be spent on things that the government will not pay for or that would otherwise be too expensive for the disabled person.  Examples can range from vacations to upgraded wheel chairs.

A Special Needs Trust has several technical requirements.  The beneficiary must be disabled and under age 65 when the trust is established.  The trust has to be established either by the disabled person’s parent, grandparent, or legal guardian, or by the court.  The trust may then be funded by the assets of the disabled person or the disabled person’s spouse, including assets that they are entitled to but have not yet received.  The trust may also contain assets of other individuals, although it might be better for such persons to have established a Supplemental Needs Trust.

The trust must be irrevocable and solely for the benefit of the disabled person, with a few select exceptions.  Distributions can only be made by the trustee purchasing items or services directly from a third party on behalf of the disabled person.  The money in the trust may not be used to replace or duplicate money that a governmental program would otherwise provide.  If the disabled person receives Supplemental Social Security, the money cannot be used for shelter or food.  Use for clothing may also be problematic. 

Once the beneficiary has died, any assets remaining in a Special Needs Trust go to Medical Assistance to repay any amounts that Medical Assistance has spent on the beneficiary.  Only if the Medical Assistance claim does not completely exhaust the assets of the trust can the family or another beneficiary get any money from the trust.

If you are interested in creating a Special Needs Trust, or discussing your other financial planning options, please contact Tarrant & Liska. 

How do I include my pets in my estate planning?

       We periodically get requests to establish a trust to provide for the care of a pet.  Unfortunately, Minnesota is one of the states that does not allow animal owners to form a pet trust to provide for their pets after their death.  Minnesota trusts must have a person or a charitable entity as a beneficiary.  Pets are considered property under the law and can only be willed and transferred.  So there is no simple way to set aside trust assets or money for your pet, but there are still some planning options available to ensure that your pets are cared for after your death or incapacity.

       The primary option available to Minnesota residents is to leave your pet to a selected devisee or beneficiary through your will or through a living trust.  While you cannot give money directly to your animal, you may leave money to the new owner that is intended for the care of the animal.  With this option, the gift is often accompanied with a set of instructions detailing your desires for the pet’s care.  In the past, we have drafted trusts containing a pet and money for the benefit of a named person.  This trust contained a provision requiring that the beneficiary must agree to take care of the pet as a condition of being the beneficiary.  If, in the opinion of the Trustee, the beneficiary was unable or unwilling to take care of the pet, the beneficiary’s interest terminates and the animal and the accompanying money in the trust is distributed to someone else.

       As another option, you may want to consider making a gift to a participating animal shelter or veterinary care organization, which will then either care for your pet or locate a foster home after your death.  In Minnesota, several nonprofit agencies and educational institutions offer these services in exchange for a lifetime or testamentary gift of some specified minimum amount.  The gift pays for the care and placement of the animal.  This is a good route to take when no one you know is willing or able to accept responsibility for your pets after your death.  It is also a good backup plan in case your selected devisee/beneficiary is unable to take your pet.

       A final option is to simply delegate to your Personal Representative the power to select a new owner or give the pet to a “no kill” shelter.  Under this option, the Personal Representative would be responsible for caring for the pet after your death until they can take the appropriate action to find a new owner who is willing to take on your pet. 

       Whichever option you choose, it is a good idea to specify multiple alternative devisees/beneficiaries in case the first person chosen does not survive you or dies while the pet is still alive.  And it is also important that you communicate with your Personal Representative and your selected devisee/beneficiary so they are all aware of your wishes and consent to the responsibilities with which they are being entrusted.

       Providing for your pet within your estate plan can help ensure that your animal will continue to receive the same level of care that it did during your life.  If you would like to discuss your estate planning options, and how your pet might fit into your plans, please feel free to contact Tarrant & Liska.

Pride’s Progeny: Legal Ramifications Of Same-Sex Marriage

A recent edition of the Bench & Bar of Minnesota featured a nice article titled “Pride’s Progeny: Legal Ramifications of Same-Sex Marriage.”  As the title suggests, the article dives into many of the legal issues surrounding same-sex marriage in light of many of the recent developments, both in Minnesota and at the federal level.  The discussion covers the constitutional law issues, family law issues, labor and employment law issues, and immigration issues.  The article, linked below, is a worthwhile read for anyone interested  in the developments regarding same-sex marriage.

http://mnbenchbar.com/2014/01/prides-progeny/

Pride’s Progeny: Legal Ramifications Of Same-Sex Marriage

Posted JAN 13 2014 by DALE CARPENTER, SONJA DUNNWALD PETERSON, NANCY ZALUSKY BERG, AND R. MARK FREY in ARTICLES, CURRENT ISSUE with 0 COMMENTS

Legislation and litigation regarding same-sex marriage has altered the legal landscape for attorneys and clients in areas of family law, labor & employment law, immigration, and constitutional law with wide-ranging implications that are still being realized.

The Supreme Court’s 2013 decision in United States v. Windsor,¹ the federal Defense of Marriage Act,² and Minnesota’s adoption of same-sex marriage³ together constitute a legal landscape significantly altered from what went before.  Both new opportunities and new questions have arisen from these developments, prompting us to inquire into the substance, the significance, and implications of these changes in the law for various areas of Minnesota legal practice.  Professor Dale Carpenter, Earl R. Larson Professor of Civil Rights and Civil Liberties Law at the University of Minnesota Law School, Nancy Zalusky Berg, partner at Walling, Berg & Debele, P.A., Sonja Dunnwald Peterson, partner at Dunnwald and Peterson, P.A., and R. Mark Frey, of Frey Law Office, have together contributed insights and perspectives on these developments as they relate to the Constitution, family law, labor and employment law, and immigration law.

CONSTITUTIONAL ISSUES

Bench & Bar:  The United States Supreme Court decided U.S. v. Windsor on June 26, 2013 with the case generating lots of attention.  What are the basic facts of the case?

Dale Carpenter:  The case involves a New York same-sex couple, Edith Windsor and Thea Spyer, who married one another in Canada in 2007 to formalize their 40-year-old relationship.  Spyer died in 2009 and left her estate to Windsor.  The estate was sizable and the IRS hit Windsor with an estate tax of $363,000. Windsor argued in her lawsuit that she was in fact married under New York law, not subject to the tax given her surviving spouse status, and the law known as the Defense of Marriage Act (DOMA) deeming her marriage as invalid was unconstitutional.

B&B: What is DOMA (Defense of Marriage Act) and what’s its significance?

DC:  DOMA defines marriage as a relationship solely between opposite-sex couples under federal law.  This affected thousands of matters in the federal realm, including such areas as estate taxes, immigration, social security benefits, and others.

B&B:  What did the Supreme Court specifically decide and what rationale did it use in issuing its decision?

DC: Basically, the Supreme Court found Edith Windsor to be married under New York state law and thus exempt from paying that large estate tax.  More specifically, the Court found the section of DOMA defining marriage to be a relationship solely between opposite-sex couples to be a denial of equal protection and unconstitutional under the Due Process Clause of the 5th Amendment.

B&B: Why is this decision significant?

DC: The Court emphasized that the federal government has traditionally deferred to the states’ power to decide matters involving marriage and DOMA represented a significant departure from that stance.  DOMA was held to have a significant impact on same-sex couples and effectively demeaned them and their families, reflecting Congress’ animus towards them.

B&B: What impact does U.S. v. Windsor hold for states with laws on the books saying that same-sex marriage is illegal?  Does it say that same-sex marriage is now legal in all states?  If not, does a same-sex couple that married in a state where same-sex marriage is legal but living in a state where it’s illegal have rights solely under federal law and not under state law?

DC: No change in those states.  U.S. v. Windsor has to do with same-sex marriage under federal law, not that of specific states since states hold the power to regulate marriage within their borders.  If a Texas couple, for example, gets married in California and then returns to their domicile in Texas, we have a marriage under federal law but not Texas law.  So, for instance, the couple may file a federal tax return as a married couple but not a Texas tax return under state law.

B&B: Could this create some confusion at the state and federal levels?

DC: Well, Justice Scalia seems to think so and argues the Court’s rationale may lead to an argument that states in total may not deny same-sex couples these rights nor demean them and their families with animus. We’ll see but the Court was clear in its decision that states must be given great deference since they have the power to regulate marriage.

B&B: Do you foresee the Supreme Court revisiting same-sex marriage issues further down the road?  Do you know if any litigation has already commenced over this set of affairs?

DC: Time will tell.  There is litigation in two dozen states over this very issue and the Court just recently stayed a Utah decision that allowed same-sex marriages there, but it’s anybody’s guess how this will play out.  We’ll have to wait and see.

B&B: Speaking of states’ ability to regulate marriage, Minnesota Governor Mark Dayton signed a same-sex marriage bill on May 14, 2013 with the law going into effect on August 1, 2013.  What does Minnesota’s law say about marriage and same-sex couples in Minnesota?

DC: Basically this legislation amends Minnesota’s marriage law by eliminating gender as a relevant factor.  In short, two individuals of either sex may marry one another.  They must, however, abide by the law’s other requirements.

B&B: Are there any exemptions built into the law?  We know, for example, that some religious institutions are opposed to same-sex marriage.  Does Minnesota’s law require them to perform same-sex wedding ceremonies despite their opposition

DC: That’s a good point worth emphasizing.  The state’s Human Rights Act is left untouched by this change so that religious exemptions continue unabated.  The marriage ceremony itself cannot be imposed on those religious institutions who for, doctrinal reasons, are opposed to same-sex marriage.  Thus, religious institutions, doctrines, practices, and facilities cannot be modified to accommodate same-sex couples seeking to solemnize their relationship through marriage.

FAMILY LAW ISSUES

Bench & Bar:  What impact does Minnesota’s new marriage law hold for same-sex spouses within the family law context?

Nancy Zalusky Berg:  The impact of legalizing same-sex marriage continues to evolve in Minnesota.  Despite all the legal unknowns, it’s clear the Minnesota legislature intended same-sex marriage to be treated identical to, or as nearly identical to, opposite-sex marriages as possible. Some of the more common legal issues stemming from marriage include divorce, child custody, property settlement, adoption, healthcare directives, premarital agreements, estate planning, taxation and more. Generally speaking, same-sex couples have a legal right to the application of traditional family law standards regarding those issues.

B&B:  What changes has Minnesota’s law created in the realm of divorce and property settlement?

NZB:  Same-sex couples, like opposite-sex couples, can by law end a marriage and equitably divide property, seek spousal maintenance, share child support obligations, and address other issues through Minnesota’s legal system.  And, like opposite-sex couples, they may use the same legal forms that now include more appropriate and accommodating terminology.

Minnesota follows rules of comity for divorce as with same-sex marriage. An interesting outcome of Minnesota’s new marriage law is that formerly unrecognized same-sex marriages created in other states have now become legitimate here, causing some surprises for those who had moved on and married in Minnesota.

As for property settlement, marriage creates certain rights and responsibilities in relation to real estate and property in Minnesota, even if the property was acquired prior to the marriage.  If real property is titled solely in the name of one spouse, the other spouse may acquire upon marriage certain rights that vest upon divorce or death of the titled spouse.

The inchoate martial interest arises with the act of marriage creating an interest in the real estate. Traditionally, same-sex couples owned property as tenants in common or joint tenants with rights of survivorship. They have, additionally, the advantage of right to real property as tenants by the entirety.  Same-sex couples can now share in their percentage interest in real property. If one spouse dies, the surviving spouse becomes the sole owner.  Existing cotenancy or similar agreements between current domestic partners may also be affected and should be revisited if considering marriage. If a couple has an old property title they don’t prefer and would like to change to tenants in the entirety, the process is fairly simple: record a new deed to modify.

Minnesota divorce law clearly differentiates between premarital property (property owned prior to the marriage) and marital property (property acquired after the marriage).  For same-sex couples who have partnered for years without the legal protection of marriage, the major portion of their combined estate may be made premarital property whereby the nonowner spouse may hold no recognizable interest.  This may include retirement accounts, bank accounts, investments, physical property, and business interests. Upon dissolution, same-sex spouses deal with property distribution in the same manner as opposite-sex spouses under Minnesota law. And, that means the court must make a “just and equitable division” of the couple’s property.

B&B:  How are child custody and adoption matters affected by these changes?

NZB:  The child custody process has become the same as that for opposite-sex couples: absent a challenge to parentage, the birth mother and spouse are considered the child’s legal “parents” and listed as such on the child’s birth certificate. Two married women, for example, will be listed as “parents.” This allows both spouses to share all rights to the child from the outset, including custody rights, which is a vast improvement.  Prior to legalization of same-sex marriage, the birth mother was automatically granted custody while the partner was not, causing problems especially upon separation.  Many family law practitioners continue, however, to encourage same-sex parents to seek a second-parent adoption to ensure both parents’ legal rights regardless of where they may travel or relocate as a family

For couples using surrogates, this process is inherently more complicated.  Minnesota adoption law and surrogacy laws continue to govern such a situation.

For same-sex couples adopting together, both parents’ names are listed on the birth certificate. This rule applies as well to children from a previous marriage adopted by a new spouse. Likewise, the second-parent adoption lists both parents’ names on the birth certificate as “parent.”  This allows unmarried same-sex couples, male spouses adopting together, and married, second-parent adopters rights to health insurance coverage, medical decision-making in case of emergency, estate inheritance rights, and custody rights.

B&B:  May we assume that income and estate taxes as well as premarital agreements have been altered by Minnesota’s new law?

NZB:  That’s correct.  Since the recent Windsor decision vacating Section 3 of the federal Defense of Marriage Act (DOMA), the federal government now recognizes same-sex spouses for federal income and estate tax purposes.

In Minnesota, a married couple may choose to file their returns as “married filing jointly” or “married filing separately.” They may also, according to the ACLU’s Know Your Rights: Frequently Asked Questions About Minnesota’s Freedom to Marry Law, “file joint state tax returns, take spousal deductions on state income taxes, exclude employer contributions for spousal health insurance from taxable income for state taxes, exempt property inherited from spouses from state estate tax, and receive tax benefits when transferring interests in property.”⁴  I also understand the IRS has ruled that it will accept amended federal and state returns for a prior year.

Moving on to premarital agreements, we can say that same-sex couples may form premarital agreements in the same manner as opposite-sex couples, subject, of course, to Minnesota law.

Any same-sex couple previously married in a state legally recognizing same-sex marriage should consider updating their estate planning documents to reflect current Minnesota law.

In general, such agreements continue in place regardless of marriage.  If contemplating marriage, a same-sex couple should review the provisions of previously created agreements with a family law attorney to discuss their implications for an impending legal marriage in this state.

B&B:  Health care directives have been a serious point of discussion for many years for same-sex couples since important decisions need to be made about care of a partner.  How does the new law affect this area?

NZB:  Health care directives remain critical to same-sex couples as they provide spouses a say in the other’s health crisis.  Despite recent changes in the law, directives continue to play an important role in ensuring proper care of a partner and spouse.  If a spouse, for example, is injured or killed in a state not recognizing same-sex marriage, it’s critical that health care directives and health care proxies be in place to allow the
uninjured spouse to make decisions about care for the other.

Elderly spouses, in states recognizing same-sex marriage, can now take advantage of protections under Medicaid.  Healthy spouses have an allowance on their income providing Medicaid eligibility for the institutionalized spouse.  Prior to same-sex marriage, couples did not have this benefit.

B&B:  Over the years, the terms same-sex marriage, civil unions, and domestic partnerships have been used somewhat haphazardly around the country. Frankly, it’s confusing.  Is there any distinction between civil unions and domestic partnerships and same-sex marriage?  How would such relationships be handled under Minnesota law for such couples now residing here?  Would they be considered married?  Or, would these unions be considered something less such that those couples should be encouraged to marry in order to derive benefits guaranteed by Minnesota law?

NZB:  Currently, there are four states allowing civil unions to both same-sex and opposite-sex couples.  Civil unions provide same-sex couples recognition of their relationship and legal rights similar to married spouses. Two states—Nevada and Oregon—have adopted “broad domestic partnerships” granting spousal rights to unmarried couples.

A “civil union” is not recognized in Minnesota and couples with a civil union should marry in Minnesota in order to obtain the rights and benefits Minnesota accords.

Same-sex couples in civil unions and living in states allowing civil unions may dissolve their legal relationships there.

B&B:  How are same-sex marriages formed in other states treated in Minnesota?

NZB:  All legal same-sex marriages formed outside of Minnesota will be recognized and couples may divorce here as long as they follow the same guidelines as opposite-sex couples.  That means they must meet Minnesota’s residency requirements by living here at least 180 days before starting their divorce case.  Prior to passage of Minnesota’s marriage law and recognition of same-sex marriage, same-sex couples lawfully married in other states could not seek a divorce here.

Likewise, states not recognizing same-sex marriage will not acknowledge a legal Minnesota same-sex marriage.  And, since those states do not recognize such a marriage, a same-sex couple will be denied the right to obtain a divorce.  Interestingly, however, under Minnesota’s new law, that same-sex married couple may return to Minnesota to get a divorce without establishing residency.

LABOR & EMPLOYMENT ISSUES

Bench & Bar:   What effect does Minnesota’s same-sex marriage law have on labor and employment issues?  More specifically, are the same employee benefits available to opposite-sex couples now available to same-sex couples?  What about such matters as leaves of absence?  Retirement?  Health coverage?

Sonja Dunnwald Peterson:  Prior to enactment of Minnesota’s same-sex marriage law in 2013, the value of employee benefits received by LGBT employees in a committed relationship was significantly less than that offered their married, straight coworkers, unless their employer offered domestic partner benefits.  On its face, this would seem to be in violation of the Minnesota Human Rights Act but LGBT employees have rarely attempted to litigate this issue because it was widely assumed that the federal Employee Retirement Income Security Act (“ERISA”) would preempt such a claim.  ERISA generally applies to welfare benefit plans, such as health, dental, and vision plans, as well as pension and retirement benefits, such as 401(k)s.  Federal district courts have concluded that ERISA preempts state/local law requiring employers with health insurance plans for married employees to also make health care coverage available to domestic partners.

In light of the Supreme Court’s ruling in U.S. v. Windsor, ERISA should no longer preempt state/local laws that require employers to provide equal benefits to opposite-sex and same-sex married couples.  If an employer’s ERISA plan does not apply to same-sex married couples in a state that recognizes their marriages, same-sex married couples would be subject to disparate treatment, a situation found to be unconstitutional in Windsor.

Keep in mind, too, the Windsor court noted that Section 2 of DOMA remains valid and provides that states may continue to refuse recognition of same-sex marriages created under other states’ laws.  Section 2 provides that each state has the authority to define marriage to exclude or include same-sex marriages.  Preempting states like Minnesota from requiring employers to provide equal benefits to same-sex and opposite-sex married couples alike would infringe upon a state’s right under DOMA.

It’s also important to note that ERISA only preempts benefits plans meeting ERISA’s definition of a “plan”—not benefits failing to fall within that definition.  Thus, laws requiring equal application of an employer’s non-ERISA plans, like those providing moving expenses, travel discounts, bereavement leave, and membership discounts, must be offered equally to same-sex and opposite-sex employee couples.

B&B:  Houses of worship are allowed by Minnesota law to decline to perform same-sex marriage ceremonies if they so desire.  May those same entities or religious-based organizations refuse to provide employee benefits to same-sex couples or refuse to hire such individuals in a same-sex marriage?

SDP:  Under the Minnesota Human Rights Act (MHRA), religious associations are exempt from the MHRA’s prohibitions against sexual orientation discrimination in employment.  This would include hiring LGBT employees or, for that matter, providing benefits to same-sex married couples.  Thus, religious entities may continue to refuse to hire LGBT individuals or refuse to provide benefits to same-sex couples.

B&B:  Are other entities, which are opposed to same-sex marriages on religious grounds but secular-based, exempt?

SDP:  No, they’re not exempt.  Take, for example, an owner of a business who is a born-again Christian and argues that
(s)he is exempt from employing people not adhering to those beliefs.  That employer cannot justify such action by claiming this is simply an exercise of one’s religious beliefs.  The Minnesota Supreme Court held in its 1985 decision, State v. Sports & Health Club, Inc.,⁵ that this was unacceptable and argued the state has an overriding compelling interest in eliminating discrimination against protected classes. The same logic would apply to benefits for same-sex married couples.

B&B:  What is the impact of Minnesota’s same-sex marriage law for unmarried couples currently receiving domestic partner benefits?  Would the coverage continue or would those couples need to marry under Minnesota law?

SDP:  Prior to the enactment of Minnesota’s same-sex marriage law, a number of Minnesota employers safely provided domestic partner benefits solely to LGBT employees.  But now, if an employer provides domestic partner benefits to unmarried same-sex but not opposite-sex couples, the employer risks litigation under Title VII of the Federal Civil Rights Act (“Title VII”).

In the past, courts addressing this type of claim held that a domestic partner benefits policy limited to same-sex couples did not constitute sex discrimination because opposite-sex domestic partners were able to marry while same-sex domestic partners were not.  Thus, they were not “similarly situated” to opposite-sex domestic partners.

However, given that Minnesota as well as a number of other states and Washington D.C. recognize same-sex marriages, unmarried, opposite-sex couples denied employee benefits in those states should now be able to show they are similarly situated to same-sex unmarried couples.  Thus, employers providing domestic partner benefits solely to same-sex couples should either amend their policies providing such benefits to opposite-sex couples or rescind their offer of domestic partner benefits and provide notice under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) to the LGBT employees’ partners who are denied coverage.  If the LBGT employee marries his or her partner, that partner could again receive coverage.

IMMIGRATION LAW ISSUES

Bench & Bar:  Can married same-sex couples obtain immigration benefits for the foreign national spouse?

R. Mark Frey:  Yes, same-sex couples can now marry one another and obtain immigration benefits.  Of course, the couple must, like opposite-sex couples, prove the bona fide nature of their relationship through evidence that they married one another to solemnize their relationship rather than simply to provide the foreign national spouse a “green card.”  In fact, on July 1, 2013, just a few days after the Supreme Court’s decision in U.S. v. Windsor, Secretary of Homeland Security Janet Napolitano issued a statement that directed U.S. Citizenship and Immigration Services “to review immigration visa petitions filed on behalf of a same-sex spouse in the same manner as those filed on behalf of an opposite-sex spouse.”  And, I might add, same-sex couples who applied for immigration benefits before issuance of the U.S. v. Windsor decision and denied on account of DOMA may move to reopen their cases provided they meet certain criteria, too detailed to cover in this space.

B&B:  We know that not all states allow same-sex couples to marry one another.  What are the implications for a same-sex couple that marries in a state allowing same-sex marriage, Minnesota for example, but lives in a state that does not recognize same-sex marriage?  Can the couple still pursue immigration benefits for the foreign national spouse in their state of domicile?

RMF:  Yes, since U.S. v. Windsor contemplates federal law and DOMA, which is the province of immigration law, same-sex couples can now apply for immigration benefits in any state of the union, notwithstanding the discrepancy between states in recognizing same-sex marriages or not.  Same-sex couples receive equal protection of the law in the realm of immigration.

B&B:  If this is the case, what about areas involving other family members (e.g., a parent petitioning for an adult child and that child’s same-sex spouse, a sibling petitioning for a sibling and that sibling’s same-sex spouse, an adult child petitioning for a parent and that parent’s same-sex spouse, or fiancé(e)s?

RMF:  The same result.  The key issue is proving the qualifying relationship for that specific immigration benefit.  It no longer matters whether the relationship is between members of a same-sex or opposite-sex couple.

B&B: What about business immigration matters?  Same effect?

RMF: Absolutely.  As long as the couple is legally married, immigration benefits accrue to that foreign national spouse just as they have for opposite-sex spouses over the years.   Take, for example, the H-1B visa that is a type of temporary worker visa in the immigration arena.  An H-1B worker’s spouse and children may come along to the United States as derivatives.  No longer is there any difference if the couple is a same-sex or opposite-sex couple.

B&B: What about the refugee and asylum context?  That is, what about people fleeing persecution in their countries of origin on account of past persecution or a fear of future persecution based upon their race, religion, nationality, political opinion, or membership in a particular social group?

RMF:  Again there is no difference.  Individuals successfully obtaining refugee or asylee status may give the same status to their spouses and children provided those same-sex couples are legally married.

B&B:  Immigration also encompasses efforts by the U.S. government to remove or deport certain foreign nationals from the United States.  We understand that relief from removal is possible for some who have key family relationships with a permanent resident or U.S. citizen.  May we presume that similar relief would accrue to same-sex couples?

RMF: Yes, indeed, that is the case.  Just as with opposite-sex couples, same-sex couples may now obtain similar relief from removal for the foreign national spouse.  But, it’s not easy.  One must prove eligibility for that relief, known as cancellation of removal, by showing among other things that the person in question is a person of good moral character, as well as showing a high degree of hardship to the permanent resident or U.S. citizen spouse.

B&B: This is fairly comprehensive in the field of immigration law, isn’t it?

RMF: Yes, it is.  It’s a big deal for the country.  U.S. v. Windsor is a key Supreme Court case and all the more significant given the passage of same-sex marriage legislation in Minnesota the very same year.  I can’t help but think of Hubert H. Humphrey and his tireless efforts championing human and civil rights over the course of his life.  And, let’s not forget his key role in securing passage of the Civil Rights Act of 1964 which outlawed major forms of discrimination based on people’s race, ethnicity, national origin, religion, and sex.  Somehow I think he’s smiling approvingly of this great step forward.

 

Notes

¹ United States v. Windsor, 570 U.S. ___ (2013).

² Defense of Marriage Act (DOMA), 110 Stat. 2419 (1996).

³ Minn. Stat. §517 (2013).

⁴ http://tinyurl.com/mvn9whe/

⁵ State by McClure v. Sports and Health Club, Inc., 370 N.W.2d 844 (Minn. 1985).