The Supreme Judicial Court’s ruling that the 1996 Defense of Marriage Act is unconstitutional paves the way for married same-sex couples to receive more than 1,000 federal benefits and protections their straight counterparts already have access to. The ruling applies to all married couples in Massachusetts, as well as the 11 other states and the District of Columbia where same-sex marriage is legal.
The following are some important planning considerations for married same-sex couples.
Filing Status: Married same-sex couples now have the opportunity to file a joint federal income tax return. Many factors should be considered before choosing a filing status, so it is important to fully understand the economic consequences before making an election; in some cases it still may be advantageous to file separately. Keep in mind there are many questions that still need to be addressed by the IRS. For example:
- Will same-sex married couples be able to or required to amend prior year returns? If so, for which years and how will this effect prior Roth contributions, taxation of payments for health coverage for a same-sex spouse, etc.
- What happens if the couple is married in a state or country that recognizes same-sex marriage but on 12/31, they reside in a state that does not recognize their marriage? Do they file their 1040 as married or single?
- What about 2012 for those who are on extension? Will this be resolved in time for those parties to file prior to 10/15? And will there be a disparity for those who are on extension as contrasted with those who have already filed for 2012?
- What about those in civil unions?
Work with your tax professional to determine the best course of action for your specific situation.
Jointly Held Assets: It is important for married same-sex couples to review titling of jointly held assets given additional options for property ownership. If you own your primary residence jointly, a same-sex married couple may now be eligible to take advantage of up to $500,000 exclusion on the capital gain from the sale of a primary residence, versus $250,000 for single filers. Both use and ownership tests must be met to claim the exemption.
Estate Planning: Additional options for gifting are now available, including gift splitting, marital deduction for federal estate tax purposes and portability. Same-sex married couples should have their existing estate planning documents reviewed and consider the use of marital trusts for federal estate tax mitigation.
Health Care Benefits
Married same-sex couples will now be eligible to elect spousal and family coverage under one plan. While some employers have offered this option in the past, many have not. Same-sex married spouses now have the same rights to health care information and consent as spouses in heterosexual marriages.
Married same-sex couples may now be eligible for available spousal and shared benefits on long term care benefit policies. Military benefits: Though the US military has repealed "Don't Ask, Don't Tell," and promised to give 20 benefits to same-sex couples as early as August, all benefits to opposite-sex military spouses will now apply to same-sex spouses as well. Additionally, spouses of deceased veterans will be eligible to receive veterans’ benefits. Other benefits include spousal coverage under health care plans and housing allowances to cover gay married couples.
A married person automatically inherits his or her deceased spouse's qualified defined contribution account, unless he or she explicitly waives the right to that benefit. Likewise, for defined benefit plans, a joint and survivor benefit is automatic unless waived by both spouses. This is now available to married same-sex spouses.
Same-sex married couples are now eligible to receive spousal Social Security benefits. Before electing a spousal benefit, it is important to consider approaches that will maximize benefits under the couple's joint expected lifetime.
In the event that a same-sex couple divorces, alimony payments will be taxed to the payee and can be deducted by the payor. Child support will be a non taxable event for both the payor and the payee.
Over the next several weeks there will be many questions that will need to be sorted out and guidance needed on implementation. In the meantime, if you have questions, please give us a call.
The information contained in this correspondence is not intended to be a "Covered Opinion" under Treasury Department Circular 230. If the information is construed to be such an opinion, the opinion was written to support the promotion or marketing of the transaction(s) or matter(s) addressed in the opinion and the taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. Furthermore, the opinion does not reach a conclusion at a confidence level of at least more likely than not with respect to one or more significant Federal tax issues addressed by the opinion. In addition, with respect to those significant Federal tax issues, the opinion was not written, and cannot be used by the taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.
Jessie Foster is a registered representative of Lincoln Financial Advisors Corp. Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (Member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Raskin Planning Group is not an affiliate of Lincoln Financial Advisors Corp.