On June 26, 2015, the Supreme Court ruled in favor of state recognition for same-sex marriage in Obergefell v. Hodges. Two years before that, in United States v. Windsor, it struck down Section 3 of the Defense of Marriage Act, which defined marriage for federal purposes as existing only between one woman and one man.
"In its most basic terms, recognition of same-sex marriage equates to the simple fact that a spouse is now a spouse, irrespective of gender, in the eyes of the law," John McManus, founding partners of the estate planning law firm of McManus & Associates, said in a statement.
"Today, there are opportunities and protections within reach for same-sex couples that were unavailable during most of American history."
Following are 10 tax and estate planning considerations for same-sex couples, part of the law firm's Educational Focus Series:
1. Gender-Blind
Because same-sex and opposite-sex married couples are afforded the same tax benefits on both the federal and state level, there is no longer a need to draft estate planning documents differently for same-sex couples. Whether a will was executed before Obergefell makes no difference. The applicable law is the law at the testator's death, and pursuant to the Supreme Court's decision, states are obliged to recognize same-sex marriage.
2. Unlimited Marital Deduction
Same-sex couples who wed are eligible to take advantage of the unlimited marital deduction for federal estate and gift tax. Before Obergefell, same-sex couples had to rely on their applicable exclusion amount with regard to providing for the surviving spouse. Same-sex couples should review any existing estate planning with their wealth planning and tax advisors in order to best use the tax-saving vehicles available to them.
3. Portability
Besides the unlimited marital deduction, a surviving spouse in a same-sex marriage is entitled to the portability provision under federal estate and gift tax law. This means a surviving spouse may preserve, and thereafter use, any portion of the deceased spouse's unused applicable exclusion amount. Portability allows the surviving spouse to make tax-free gifts in order to reduce the estate tax owed upon his or her death.
In an in-depth discussion, McManus offers more tips on the possibilities of portability.
4. Gift Splitting
Each individual has the right to make gifts on a tax-free basis for federal gift and generation skipping transfer tax. At present, the annual exclusion amount is $14,000. Now same-sex couples can enjoy the benefits of gift splitting, whereby one spouse can gift from his or her own assets, with the consent of the other spouse, in order to use both of their annual exclusion amounts (currently $28,000 maximum to any individual), resulting in the gifting spouse's applicable lifetime gift tax exemption amount remaining intact.
Gift splitting generally requires the filing of a Form 709 Gift Tax Return. If the split gifts total $28,000 or less to each donee, however, only the donor spouse is required to file a gift tax return.
5. Beneficiary Designation of Retirement Benefits
A deceased same-sex spouse's retirement account assets can now be rolled over into the surviving spouse's account without the requirement of a mandatory minimum distribution or lump sum distribution. Such a roll-over was not possible before Obergefell.
