12th Nov 2014
With the overturning of DOMA and multiple states now recognizing same-sex marriage by choice or by court order, there are many issues raised for same-sex couples. One of the most important is the same as for any couple, don’t ignore your estate planning!
Laws change, times change, families change. What were great planning considerations for same-sex partners in 2005 may not be good planning today. Being legally married affords increased options for planning using the federal unified credit. In 2005, it would not be uncommon to gift a portion of your estate to a partner in trust or outright to maximize the unified credit of both partners. Also, portability is now something that same-sex couples can take advantage of making such gifts unnecessary. Plus, married persons can transfer unlimited assets to each other free of gift taxes. This means what was gifted in the past could be undone if there are other reasons to do so (such as for the purpose of family business planning). The use of credit shelter trusts, marital deduction trusts, second to die insurance, are just a few of things you should talk to your estate planner about that are now available to you.
Same-sex couples can now use the federal split gift laws. If one spouse owns a family business, both spouses can gift their maximum annual exclusion to get shares to their daughter. This was impossible before without gifting shares first to the non-owner spouse causing the headache of extra steps along the way.
Next, consider your IRA and other retirement plans. You may have chosen a family member rather than your spouse as your beneficiary due to favorable retirement plan rules. The rules that apply to spouses now apply to all spouses and may give you another planning opportunity. Note too that your plan is probably in the process of adopting new rules regarding same-sex couples, including the requirement of spousal consent to bypass a spouse. Be sure to pay attention to these when new plan information is received and consult your estate planner with any questions.
There are still some challenges that need to be worked out with your estate planner. The biggest for most people is how to define children in your documents. You need to be sure your planner knows whether the children you raised as a couple were adopted by the non-carrying spouse after birth, carried by a surrogate, adopted by one or both spouses, or are from a previous relationship, etc.
Another challenge is state law. Some states such as Tennessee have an estate tax threshold currently lower than the federal unified credit (although it is moving towards being phased out) and Tennessee does not recognize same-sex unions. The law is still evolving and as such, it is important that you carefully plan for your state of residence, not just the state in which you you were married.
These issues are in flux and will need to be reviewed from time to time as this area of law continues to form. Don’t presume the planning you did a few years ago will carry you forward today. See your estate planner for an update and consult and continue to keep in touch for the changes tomorrow we can only guess at today.