Same Sex Estate Planning Presumed Safe Under New Presidency
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At first there was a bit of concern about how Trump, now President-Elect would address same sex marriage.
While Vice President Pence is adamantly opposed to same sex marriage, Trump recently announced publicly on CBS news that he is not going to take any measures to undo the Supreme Court Ruling. This is great news since estate planning is different for single vs. married couples.
Interviewed by Leslie Stahl, trump was asked whether he supported marriage equality. His response was that the case did not concern him. “It’s irrelevant,” he said, “Because it was already settled. It’s law. It was settled in the Supreme Court. I mean it’s done.”
Were Trump to overturn the Supreme Court Ruling, same sex families would be in a quandary. For instance spouses and children in same-sex families might not be eligible for federal health care or company health insurance provided by their spouse’s plan. And, same-sex married couples would have to pay federal inheritance tax if one spouse left money to the other.
Benefits of Same Sex Tax and Estate Planning
Since it appears unlikely that the Supreme Court Ruling in favor of same sex marriages would be overturned, I’m going to focus on the positive aspects and benefits of estate planning for same sex couples.
As it stands, same sex and opposite sex married couples are afforded the same tax benefits on both the federal and state level, so there is no longer a need to draft estate planning documents differently for same sex couples. It makes no difference if a will was executed before Obergefell. 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.
Unlimited Marital Deduction
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.
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.
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.
Insurance planning may have been part of same sex planning prior to the Obergefell decision. Now, all policies, as well as beneficiary designations, should be reviewed in conjunction with the new planning concepts for a streamlined flow of assets upon both the first spouse’s death and that of the surviving spouse.
Same sex spouses may amend previously filed federal estate, gift and income tax returns from single to married status, subject to the statutory limitations period of three years from when the tax return was originally due or filed (if on extension) or two years from the date the tax was paid, whichever is later.
Married couples living in states that did not recognize same sex marriages before Obergefell may be able to amend filed state income tax returns for the years 2012, 2013 or 2014, depending on the law of the state.