Estate planning checklist: Same-sex marriage (Part 3)

Same-Sex Spouses:

On June 26, 2013the Supreme Court of the United States issued a decision that addressed the legality of the Defense of Marriage Act (DOMA). The court determined that although each state may regulate marriage for its citizens, once married, all spouses are to be treated equally under federal law. 

For planning purposes this impacts not only your federal income taxes, but also social security benefits, FMLA, and health insurance coverage. Retirement benefits from a qualified retirement plan will be required to allow the surviving spouse of a same-sex married couple to withdraw the funds over the surviving spouse’s lifetime. IRAs that allow a spouse to roll over inherited assets into his/her own IRA are now allowed. There are over 1,000 federal benefits that may be impacted by this ruling. Check beneficiary designations as well as federal tax withholding (IRS Form W-4). 

Same-sex married residents no longer need to file separate federal tax returns for each spouse. Married filing jointly or married filing separately is the same for all married couples. In fact, you might want to consider amending your returns for 2011 and 2012. While an amended return is not guaranteed to benefit you, if you do not look into it, you will never know. 

For estate planners, the biggest change is that same-sex couples now are able to take advantage of the unlimited marital exemption to transfer assets between spouses during life, as well as at death. For high-wealth couples, “portability” of the estate tax exemption at the death of the first spouse to a surviving spouse is now allowed. With an estate tax exemption currently at $5.25 million per spouse, this allows a same sex married couple to have a combined $10.5 million estate tax exemption. While you might not think it impacts you, if the surviving spouse wins a large lottery ticket or comes into money for any other reason after the first spouse’s death, portability may result in a significant estate tax savings.

 

Lisa L. Halbert, Esq.

Image credit: Pargon under Creative Commons license