Potential pitfalls: financial planning challenges for registered domestic partners.

• Author: Chase, Brian

California's Domestic Partner Rights and Responsibilities Act (AB 205) went into effect Jan. 1, 2005.

Though a number of clean-up provisions went into effect Jan. 1, 2006 that provide clarity and additional protection for domestic partners, the newness of the law and inconsistencies between state and federal regulations create some legal uncertainty that complicates financial planning for domestic partners.

This article provides an overview of a few selected issues that CPAs who provide financial planning for domestic partners may face.

CHANGE IN OWNERSHIP

Among the first domestic partnership issues to reach the California courts is the narrow question of whether or not a surviving registered domestic partner whose partner died prior to Jan. 1, 2006, will be treated the same as a surviving spouse by local property tax assessors. While the regulatory authority seems to support such treatment, this interpretation is under challenge.

For guidance, SB 565 is a good place to start. It's been in effect since Jan. 1, 2006, and provides registered domestic partners protection against reassessment that parallels the protection provided to spouses.

Further, Article 13A of the California Constitution excludes certain transfers from the definition of "change in ownership" that usually trigger a reassessment of property to fair-market value and a corresponding tax increase. Article 13A, Sec. (g)(2) provides that "[t]ransfers to a spouse which take place upon the death of a spouse" are not "change[s] of ownership," and hence, not subject to reassessment. Article 13A does not define "spouse" or characterize the enumerated limitations as exclusive.

Also, the chief counsel for the California Board of Equalization, which has the authority to administer California's property tax programs, issued a memorandum March 14, 2003, requesting an amendment to Rule 462.240 that specifies transfers that do not constitute a "change in ownership" for reassessment purposes. The amendment added a specific exclusion for the death of a domestic partner from the definition of "change in ownership."

The BOE issued the amendment (Subsection (k) to Rule 462.040), stating that a "change of ownership" does not include "[a]ny transfer of separate property inherited by a surviving domestic partner, as defined in subdivision (b) of section 37 of the Probate Code, by intestate succession, upon the death of a registered domestic partner."

A final rule incorporating this change was...