With the Supreme Court’s historic ruling on marriage equality, many of the longstanding obstacles that same-sex couples have faced in financial, estate and legal planning have finally been lifted.
But even with the expanded rights that come with being married, couples still need to focus on creating a solid financial and estate plan that reflects the goals of both partners. This kind of strategic planning — best carried out with the guidance of financial and legal professionals — can help you build a financially secure future, and ensure your priorities are carried out according to your wishes in the event of a health emergency or death.
Financial and estate planning is just as important for couples who choose not to marry and need to navigate critical issues, such as how they manage their shared assets and how they designate their legal beneficiaries. In all cases — married and unmarried couples alike — good planning is the key to long-term peace of mind.
The Supreme Court’s decision in Obergefell v. Hodges in June 2015 held that same-sex couples have a right to marry under the Constitution and that states may no longer deny this liberty. The Court further held that there is no lawful basis for a state to refuse to recognize a lawful same-sex marriage performed in another State on the ground of its same-sex character.
The Obergefell ruling comes after the 2013 U.S. v. Windsor case, which struck down the section of the federal Defense of Marriage Act, which limited federal recognition of marriage as between people of the opposite sex. Although this extended more than 1,000 federal rights and responsibilities to same-sex married couples, it did not alleviate the need to understand and plan for disparate state laws.
Planning for any married couple will include the same considerations. Proper estate and retirement planning will help you and your spouse plan for your later years. Legal documents such as wills, trusts, powers of attorney and healthcare directives, and others can offer important protection to ensure that your wishes are upheld. Some common planning considerations that you may not have addressed in the past include:
All legal same-sex marriages are recognized for federal tax purposes, including income and estate taxes. If you are legally married, you must file your income taxes as either married filing jointly or married filing separately, depending on your personal financial situation and other considerations such as whether you are eligible for any tax credits.
Recognition of same-sex marriages at both the Federal and all state levels may also affect how you approach retirement planning. For example, there are greater options for leaving monies from workplace retirement plans and Individual Retirement Accounts to your surviving spouse rather than a beneficiary who is not a spouse. Married or not-married, same-sex couples should be sure to review their beneficiary designations in light of the changes and to ensure those designations are coordinated with their broader estate plans.
The Court’s ruling in Obergefell effectively extends Social Security benefits to all married couples. This means you may be able to collect Social Security retirement or disability benefits based on your spouse’s earnings record rather than your own. You will typically be eligible to receive the greater of either your own benefit or an amount equal to 50% of your retired spouse’s benefit.
If your spouse is disabled and receiving Social Security disability benefits, you may be able to collect a monthly benefit based on your disabled spouse’s benefits. There are certain eligibility requirements in determining whether you will be eligible to receive Social Security benefits based on your spouse’s record.
Although it’s unpleasant to think about, you need to plan ahead for your possible incapacity and death.
Generally, it is a good idea to execute both a general durable power of attorney and a durable power of attorney for healthcare, also called a healthcare proxy. A general durable power of attorney will authorize a named individual to act for you in most financial transactions as your agent. A healthcare proxy authorizes the named individual to act on your behalf in all medical and personal need type situations.
If you die without a will, your assets will be distributed according to state law. To avoid that, it’s important to create a legal framework to ensure your assets pass according to your wishes. A will is a legal instrument expressing your wishes with respect to several important matters after your death.
You may also need a revocable trust, which is especially effective for individuals with property in different states, in states in which the probate process is particularly onerous or time consuming, or simply for individuals that wish greater privacy. The trust will contain the primary provisions for distributing your assets during incapacity and post death and appoint the party (the successor trustee) who will be in charge of the process. A trust can also be used to provide for your spouse, partner or other loved ones after your death.
Married same-sex couples should also ensure their estate plans include appropriate state or federal tax planning. These couples can all now take advantage of the spousal gift and estate tax deductions and portability for a deceased spouse’s unused federal estate tax exclusion amount.
Recent rulings have a significant impact on same-sex married couples. As equal treatment for same-sex couples continues to evolve, be sure you are working with a financial advisor, accountant and tax professional that are familiar with the developing landscape.
For more information on any of the issues discussed in this piece, contact your TIAA-CREF Advisor. Also, see our whitepaper, Love, marriage and money: Financial planning tips for same-sex couples in the new age of marriage equality (PDF) .
Treatment for same-sex couples on federal tax, retirement and other financial issues continues to evolve. Be sure you are working with a TIAA-CREF financial advisor, accountant and tax lawyer familiar with this development landscape.
This article is for general informational purposes only. It is not intended to be used, and cannot be used, as a substitute for specific individualized legal or tax advice. Additionally, any tax information provided is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. Tax and other laws are subject to change, either prospectively or retroactively. Individuals should consult with a qualified independent tax advisor, CPA and/or attorney for specific advice based on the individual’s personal circumstances. Examples included in this article, if any, are hypothetical and for illustrative purposes only.
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