GAY COUPLES RECEIVE CLASS A STATUS

Recently, Governor McGreevey signed the “Domestic Partnership Act.” The stated purpose of the Act is to “recognize and support” those individuals who share “an important personal, emotional and committed relationship” with another individual of the same gender.

In order for the State to recognize a domestic partnership, the individuals must file an Affidavit of Domestic Partnership with the local registrar, pay a small fee, and meet certain requirements. Those requirements include such things as sharing a common residence, share finances (such as by owning real property together), agree to be responsible for each other’s basic living expenses, be of the same gender, and be over the age of 18. The individuals cannot be related to one another by blood or marriage (known in legal parlance as consanguinity or affinity).

The Act provides many legal rights to domestic partners, ordinarily reserved for legally, married persons. The Act, by the way, does not authorize the legal marriage between individuals of the same gender.

Many of the rights that the Act grants deal with discrimination, visitation for medical purposes, and health insurance. One aspect of the Act, in my opinion, will have a particularly profound and positive impact on my chosen field of practice and that is the manner in which the Act amends New Jersey’s Transfer Inheritance Tax.

Of all the aspects of the Act, this may be one of the least understood because most New Jersey residents are unaware of the Transfer Inheritance Tax. The inheritance tax is a tax on inheritances that pass to individuals who are not closely related, by blood or marriage, to a decedent.

For purposes of the inheritance tax, there are four “classes” of beneficiaries: A, C, D, and E. There is no class B; the State eliminated class B in 1963.

Class A beneficiaries are such individuals as spouses, parents, children, and grandchild. These individuals are exempt from the Transfer Inheritance Tax and for this reason, most people have never heard of the tax. Since most people who receive an inheritance are exempt from the tax, the tax has little impact on most people’s lives and, therefore, garners little attention.

Class C beneficiaries are brothers and sisters, and sons-in-law and daughters-in-law. These individuals receive a $25,000 exemption from the tax, then pay tax on anything above $25,000 at rates that range from 11% to 16%.

Class E beneficiaries are charities and certain government entities. These entities are exempt from the tax.

Class D beneficiaries are all other beneficiaries. These individuals pay tax between 15% and 16% if they receive an inheritance of $500 or more.

Couples of the same gender – that is, those couples for whom the Act is designed to benefit – were, before the passage of the Domestic Partnership Act, class D beneficiaries. The classification of domestic partners as class D was very troublesome for homosexual couples.

For example, under the old law, when the first partner died leaving his entire estate (assume a value of $300,000) to his surviving partner, the surviving partner, as a class D beneficiary, would have owed an inheritance tax of $45,000. On the other hand, if a spouse died leaving his entire estate (valued at $300,000) to his wife, the wife would owe no tax.

I have had several homosexual couples as clients. Many have been together for decades. To me, for all intents and purposes, they are married. (In a prior life, for a very short period of time, I practiced divorce law. So, I can say without equivocation that if a couple is together for more than 10 years nowadays, it’s a long-term marriage.)

Under the Domestic Partnership Act, domestic partners have the status of Class A beneficiaries and will be exempt from the inheritance tax to the extent that a domestic partner leaves his estate to his surviving partner.

The Act does not, however, grant domestic partners the status of “spouse” for New Jersey estate tax. So, unlike a spouse, a surviving domestic partner will have to pay New Jersey estate tax from his deceased partner’s estate to the extent that the estate exceeds $675,000. Federal estate tax will also be owed to the extent that the estate exceeds $1,500,000, since the Domestic Partnership Act does nothing to change federal law or grant same gender couples the status of “spouse.”