Ensuring your assets are there for your same-sex spouse with Estate Planning tools will be much easier, and fairer, given the DOMA decision. It is clear we are still in a transition period, but, in Nevada, which only mandates filing a federal tax form, there are broader protections for higher wealth same-sex spouses.
For those that may not be as familiar with this issue, there was a recent decision by the U.S. Supreme Court in US v. Windsor that significantly impacts same-sex married couples. “DOMA” (the Defense of Marriage Act) was impacted by the Windsor decision when the Supreme Court, in a 5–4 decision this summer, found Section 3 of DOMA was unconstitutional, declaring it “a deprivation of the liberty of the person protected by the Fifth Amendment.” This has special tax and estate planning implications for same-sex married couples. While Nevada does not allow same-sex marriage, couples that marry in other states now living in Nevada are impacted under federal rules. Under Windsor, same-sex married couples are treated the same as heterosexual married couples in certain jurisdictions.
Each person can give another person thousands of dollars each year without current tax consequences (for 2013, the tax-free gift limit is $14,000, adjusted each year based on inflation). The gift recipient does not have to pay tax on the gift. The giver must report the amount given if it exceeds the annual limit. These excess amounts go toward the lifetime total of money each taxpayer may give without facing any gift tax penalty. In addition, an important tax break for married couples, called the marital deduction, permits spouses to transfer as much as they want to each other without having to pay any federal estate or gift tax if the recipient spouse is a U.S. citizen. For 2013, the lifetime limit is $5.25 million (also adjusted each year for inflation). This lifetime limit is taken into consideration by Estate Planning professionals when looking at how spouses intend to provide for each other in their final Will or Trust documents.
The annual and lifetime gift limits mean that few people have to worry about the tax implications of gifts. However, married couples recognized by the Internal Revenue Service get a break. Heterosexual married couples are subject to no limits, annual or lifetime, on gifts or transfers of property of any amount to their spouses. With the DOMA decision, now same-sex married couples who were legally married in one of the states or jurisdictions that recognize their marriage will be given the same federal estate and gift tax benefits as heterosexual married couples.
The DOMA decision impacts other areas of law that are considered when drafting Estate Plan documents. To name just a few, same-sex married couples should consider the implications the law change will have on:
- The right to be named the sole primary beneficiary on ERISA qualified retirement accounts.
- The right to roll over IRAs and other qualified retirement plans, rather than be subject to mandatory withdrawals.
- The right to collect spousal benefits under Social Security Benefits.
- The right to be treated as a spouse with all military benefits.
- The right to COBRA continuation health insurance benefits.
- The right to protections for an “innocent spouse” under Medicaid and the impacts with long term nursing home care.
- The right to take time from work under the Family Medical Leave Act.
There are many professionals still figuring out where the same-sex spousal rights fit in to various areas of law, but, overturning DOMA vastly expands the estate planning resources available for same-sex couples as they plan for how to ensure the one they love is provided for.