Partners Need to Designate Beneficiaries

They met at a birthday party eight years ago, became instant friends and, six months later, inseparable companions who today are committed to spending the rest of their lives together.

Yet even though Paul Albergo and John Edwards share goals common to most long-term partners, with financial security high on their list, getting there will be tougher for the gay Washington couple because laws favor traditional husband-wife households.

Neither Albergo, a 35-year-old newsletter editor, nor Edwards, a 32-year-old architect, has the right to inherit each other’s property, to speak for the other in a crisis or, in some cases, visit the other in the hospital--unless they do some careful financial and legal planning.

Indeed, the only way unmarried couples can get legal safeguards at least similar to those of married couples is to file a series of partnership protection documents such as wills, living trusts, joint tenancy agreements and powers of attorney for health care and finances. A lawyer is generally needed to set these up.

Without such documents, their only options are joint bank accounts and naming each other as beneficiaries of insurance policies or 401(k) plans.

Other government benefits of marriage--which include dozens of things from a free second fishing license to Social Security survivor benefits--are simply unavailable without legal marriage.

“Laws are horrendously unfair and biased toward the married couple,” said Martin M. Shenkman, a Teaneck, N.J., attorney specializing in estate planning.

His advice to all domestic partners, especially same-sex couples, who unlike heterosexuals, can’t qualify as common-law spouses in states recognizing such marriages: Leave nothing to chance and put it all in writing.

“Someone might say, ‘Oh, my family likes my partner.’ But the family might have just pretended to like or tolerate the partner,” Shenkman said. “When the partner is gone, the family basically goes on the warpath because of all the pent-up disappointment, anger over their lifestyle.”

Medical, burial and child custody decisions may also be called into question if the couple haven’t left specific instructions.

Some of these considerations apply equally to unmarried heterosexual couples as well as other kinds of living arrangements. “It’s rather ironic,” said Shelley Biermann, a financial planner with American Express Financial Advisors in Sacramento. “There are actually more nontraditional families now.”

In 1970, 40% of the nation’s households fit the Ozzie and Harriet television family mode. Today, that’s down to roughly one in four families.

Biermann said about a quarter of her clients are from what may be considered unconventional households, which include everyone from single mothers to blended stepfamilies to elderly couples who don’t marry because of tax or Social Security consequences. About 5% are gays or lesbians.

Many in the financial services industry try to woo new clients regardless of their living arrangements.

“They’re the same products that everyone needs--life insurance, annuities, mutual funds, savings certificates. . . . The goals are the same as with traditional families,” Biermann said. “It’s not a moral issue, it’s a practical issue.”

About three years ago, American Express revamped its financial planning software to remove the assumptions that all clients were married couples.

“For years and years, I had to back into it. I had to essentially charge the client twice or . . . do two separate analyses on my own time and ‘marry’ them. It was absurd,” Biermann said.

Peter M. Berkery Jr., author of “Personal Financial Planning for Gays & Lesbians,” said the “business and the financial community have come out ahead of government on this matter.”

“It’s kind of a flip-flop from civil rights,” he said. Instead of federal government leadership on the issue, a few hundred businesses and a handful of city governments have pioneered by offering some kinds of domestic partnership benefits.

In particular, entertainment companies like Walt Disney, Metro-Goldwyn-Mayer, Universal, Paramount Pictures, Sony and Warner Bros. have extended health-care coverage to live-in partners of homosexual employees, as long as they fit certain criteria. Still, the IRS treats those benefits as taxable income.

Indeed, government appears to be moving in the opposite direction. Legislation barring recognition of same-sex marriage has been enacted or introduced in about three dozen states and in both houses of Congress. President Clinton recently said he would sign such a bill. These moves were touched off by indications that Hawaii’s highest court might legalize same-sex marriages within the next two years.

Although no state yet recognizes gay or lesbian unions, at least a dozen cities, including several in California, allow same-sex couples to register as domestic partners. (Fourteen states and the District of Columbia recognize common-law marriage for heterosexual couples. California is not among them.)

Albergo and Edwards, who co-own a two-bedroom brick row house in the nation’s capital and combine most of their finances, intend to live as if they were married regardless of what happens in Congress.

“Whether or not legally it’s recognized, we operate as if everything is shared,” Albergo said.

Although they’ve yet to draw up a will, the couple have taken steps to ensure the other is protected. For instance, each has given the other power of attorney to handle financial matters in the event of a disability or emergency. They hold their home as joint tenants, which means the remaining half of the property transfers to the surviving title holder upon death, not to the estate of the deceased.

Each also named the other as beneficiary on his retirement savings plans, though they cannot lay claim to a defined pension plan or Social Security benefits. That’s a right reserved only for surviving spouses or children.

Health-care benefits are separate in their household even though Albergo’s company extends them to domestic partners. The fact that they would be taxed discouraged them from putting Edwards on that plan.

Similarly, Sacramento residents Evelyn Delaney and her companion of 22 years, Nina Murray, both middle-aged accountants, have been putting together a joint investment portfolio with an eye toward retirement.

Each is named as a beneficiary of the other’s 401(k) plan and individual retirement account. They jointly own a car and four-bedroom house and share all expenses. They soon plan to draft a health-care proxy, which allows partners to speak for each other regarding medical care.

“Because we’re nontraditional . . . we really need to take care of these things,” said Delaney, who has two grown children from a previous marriage.

For those unwilling or unable to officially tie the knot, a will is perhaps the most essential tool for passing on property to designated beneficiaries, including people outside your biological or legally defined family. It’s also essential for assigning guardianship of minor children. Without it, the state applies rules that rarely make sense to nontraditional couples.

To make a will more difficult for disgruntled relatives to challenge, the document should be revised periodically, reflecting any changes in asset accumulations without affecting overall distribution, experts say.

“You set up a trail, a track record, to show quite consistently the goal that you had,” Shenkman said.

Another way to help make a bequest challenge-proof, and to bypass probate court in the process, is to set up a revocable living trust. A trust essentially holds and transfers certain assets to a partner. Since trusts require a higher level of competence to sign than a will, they’re harder to challenge.

However, there’s little escape from taxes that can eat up an inheritance. Unmarried couples are not entitled to the unlimited marital deduction, which means an estate valued at more than $600,000 is subject to federal taxes.

As a safeguard, Shenkman said, individuals can purchase life insurance policies on themselves that will pay the estate taxes upon their deaths. The insurance proceeds probably won’t be taxed as part of the estate if the policy is bought through an irrevocable life insurance trust, he said.

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Get It In Writing

Some documents unmarried couples--as well as almost everyone else--should consider:

* Will. Allows you to pass property to anyone you choose. Also essential for assigning guardianship of minor children.

* Living trust. Similar to a will, but allows property to pass without going through probate.

* Health-care proxy. Lets your partner speak on your behalf and make decisions during medical emergencies.

* Living will. Says doctors can withhold treatment if death is imminent, if the only way to stay alive is through artificial means.

* Durable power of attorney. Designates someone to handle financial matters or benefit applications in the event of a disability or emergency.

* Joint tenancy agreement. Means that surviving partner inherits the other half of a property. With tenants-in-common, a deceased party’s portion goes to whoever was named in the will. With no will or trust, the share goes to the nearest relative.

Books for unmarried couples:

* “Financial Self-Defense for Unmarried Couples,” by Larry M. Elkin, Doubleday paperback.

* “The Living Together Kit: A Legal Guide for Unmarried Couples,” by Toni Ihara and Ralph Warner, Nolo Press.

* “A Legal Guide for Lesbian and Gay Couples,” by Hayden Curry, Denis Clifford and Robin Leonard, Nolo Press.

* “Personal Financial Planning for Gays & Lesbians,” by Peter M. Berkery Jr., Irwin Professional Publishing.