Broker Check

Same-Sex Financial Advantages in the Right to Marry

Darren Zagarola, CFP®, CPA, PFS, published in the New York Daily News on July 8, 2015

The Question: Now that the Supreme Court has ruled in favor of same-sex marriages, how will this directly affect our finances after my partner and I get married?

The Answer: The Supreme Court's recent ruling to legalize same-sex marriage nationwide will level the playing field for same-sex couples with opportunities to simplify their potentially overcomplicated financial plans.

It will simplify tax filings, how assets are passed at death, the collection of federal benefits for survivors, and who will be recognized to act on behalf of their partner (now spouse) regarding privacy laws.

Gay and lesbian couples should review their estate plan and tax planning strategies, as well as update their beneficiary designations on life insurance and retirement plans.

Estate planning. Same-sex spouses will be able to inherit from their spouse without paying any federal or state inheritance or estate taxes. They will now be able to utilize the unlimited marital deduction for the estate tax exemption, as well as the portability of the federal exemption.

Those that have gifted while they have been married may want to file amended gift tax returns as well. Same-sex spouses now have the ability to transfer property to equalize estates since marital transfers are unlimited. This may be a more valuable change depending on the amount of the state estate tax exemption.

With regard to gifting, all gifts can be treated as if half were given by one spouse and half by the other, thus doubling the amount of the gift tax exclusion, which is $14,000 for 2015.

Additionally, spouses can transfer property to their partners free of the federal gift tax.

It is also advisable for same-sex spouses to review beneficiary designations on retirement plans and group life insurance plans, as new rules allow for defines contributions plans to be rolled over to spousal accounts for favorable treatment of non-qualified inherited annuities and for spousal rollovers to IRAs.

When one spouse dies, the surviving spouse will now be entitled to claim the marital deduction from the estate tax and to make a “spousal rollover” of the deceased spouses’s IRA or 401(k).

Tax planning. Same-sex couples no longer have to worry about the tax impact if they move to a state that did not previously recognize their marriage.

Filing a joint income tax return can be beneficial because it allows couples where one spouse earns the high income to take advantage of possibly having more taxable income in a lower tax bracket.

Gaining access to spousal tax rules also comes with some tax burdens – namely the marriage penalty. Whether to file married jointly or married separately is a decision that should be made with input from a financial planner or accountant.

Employee benefits. For those couples preparing for retirement, the surviving spouse will now be eligible for joint and survivor pension options.

In addition, married same-sex spouses also may be eligible for medical benefits (although they may have to wait for open enrollment periods).

Flexible spending accounts and health savings account distributions can also now be used for spouse and family members.

Pension and Social Security. Same-sex spouses are now eligible for spousal benefits in all states, including Social Security retirement benefits. Same-sex spouses can now be made beneficiaries of their partner’s federal pension.

Other important items. Couples who traveled to a state that did not recognize same-sex marriage were required to bring documentation such as their power of attorney and medical directives, as a hospital may not have recognized the marriage from another state. This is no longer a risk.

As with any couple, its’ important for same-sex spouses to review retirement plans and projections given any changes to their circumstances or with regard to court ruling and new tax rules.