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Same-Sex Marriage Estate Planning Beginning to Evolve

Same-Sex Marriage Estate Planning Beginning to Evolve December 10, 2013 —

Back last summer, when the Supreme Court declared the Defense of Marriage Act unconstitutional and struck it down, they allowed states to change the definitions of “spouse” and “marriage,” and allowed same-sex couples to be legally married for the first time. So far, 16 states and the District of Columbia allow same-sex marriage and the pace of adoption is accelerating.

The Law Trails Behind

Of course, as is usually the case, the law is once again lagging behind society and the courts when it comes to same-sex marriage estate planning benefits. As of now, there are good things and bad things to watch out for when it comes to same-sex married couples who decide to plan their estates.

The first thing to keep in mind that the overturn of the law applies only to same-sex couples who are legally married, at least for now. There is no legal framework in place to protect couples who are together, but not married. Those who are living together in civil unions or domestic partnerships are excluded from the law in the same way unmarried heterosexual couples are, with a few state-level exceptions. That said, those same-sex couples who do marry will receive the same federal estate tax treatment as any other married couple, which means they can transfer as much of their wealth to one another while they are alive and when they die without having to pay federal gift or estate taxes. They will also be able to use the portability feature of the federal estate tax exclusion for married couples.

Portability Means Tax Protection

That portability feature means, if Fred and Pete are legally married, they will receive the same federal estate tax treatment as every other married couple in the country. So, if Fred and Pete have $7 million in wealth when Fred dies, Pete can elect to invoke the portability option and pass the full value of their estate to Pete without incurring any federal estate tax, even though the exclusion for 2013 is $5.25 million. Then, when Pete dies four years later, the portability feature will allow him to add the $5.25 million Fred didn’t use to whatever the amount of the exemption is at the time of Pete’s death. (The exemption is now adjusted for inflation annually, so it will go up a bit every year.)

Of course, most couples won’t die with that much wealth.

Keep in mind, though; while federal courts recognize legally married same-sex couples when it comes to estate taxes, that is not necessarily the case in the states. That means a same-sex married couple still needs a comprehensive estate plan, and they need to consider the laws of the state in which they live. If a same-sex spouse dies without a will in a state that doesn’t recognize same-sex marriage, it’s likely, until laws change, that assets passing through probate will go to other blood relatives and family members. It’s also unlikely that spouse will not be recognized as a viable estate administrator or beneficiary. 

Same-Sex Marriage and Probate

There are a number of ways to avoid probate with your assets, even if your state doesn’t recognize a same-sex marriage fully. Among the more common options include joint ownership of property with rights of survivorship, as well as specifically naming one another as beneficiaries on insurance policies and other mechanisms, such as bank accounts and IRA and 401(k) accounts. They avoid the probate process as long as they pass on via beneficiary designation. The IRA, 401(k) and defined benefit pension plans fall under federal guidelines, though, so regardless of the state in which you live, same-sex spouses should receive the same beneficiary treatment as traditional spouses.

The bottom line on all of this is that the Supreme Court decision should greatly expand the protections for same-sex married couples when it comes to estate planning. But it does not eliminate the need for an estate plan, especially if your state hasn’t gotten around to licensing same-sex marriages. Having a plan is always your best bet.


This article was provided by Family Archival Solutions, Inc.  The article is not intended to provide legal or other advice and readers are strongly encouraged to seek professional guidance in connection with estate planning and preparation.  Family Archival Solutions offers a wide range of family preparation services. Copyright © 2013 www.familyarchivalsolutions.com. All rights reserved.