NEWS AND RESOURCES

Tax and Financial News for September 2015

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Tax, Estate Planning and Benefits Opportunities for Same-Sex Couples

On June 26, the Supreme Court made a historic ruling in the case of Obergefell v. Hodges, affirming a constitutional right to same-sex marriage in all 50 states. Prior to this decision, the following 13 states still did not recognize same-sex marriage:

  • Arkansas
  • Georgia
  • Kentucky
  • Louisiana
  • Michigan
  • Mississippi
  • Missouri
  • Nebraska
  • North Dakota
  • Ohio
  • South Dakota
  • Tennessee
  • Texas

Same-sex couples in these states were in an odd sort of limbo. They could go to another state and be legally married and have the marriage recognized federally, but it would not be recognized in their home state. As a result, they could file a joint return for their federal taxes but each spouse needed to file as single for their state returns. If one of the spouses died, their estate was subject to federal estate tax laws, but not at the state level. If their employer only operated within their home state, they could be denied certain benefits available to married couples. As a result of this Supreme Court decision, this limbo no longer exists and a number of tax, estate planning and benefit opportunities are now available to same-sex couples in these states. Here are the details on some of the changes.

Income taxes

Married same-sex couples are now allowed to file joint tax returns in all states. Usually, this results in a lower tax liability, but not always. Couples who were married in another state can retroactively amend all open past year tax returns. Going forward, these couples also can file 2014 returns that are currently on extension.

Gifting

Married spouses are allowed to make unlimited gifts to each other without any concern over federal or state gift taxes. One practical example of how this applies to same-sex couples is when they purchase a house together but contribute different amounts. Under the new ruling, they can enjoy the benefit of 50/50 joint ownership in the home without any gift tax consequences.

Estate planning

A basic estate planning principle allows one spouse to leave property to the other without paying estate taxes. The recent Supreme Court decision in Obergefell extends this spousal exclusion to the state level for everyone. Married same-sex couples also now have the right to inherit property, even in the absence of a will, under a state’s intestacy statute.

Divorce

Before, same-sex couples could only get divorced in certain states; but now that is no longer the case. Until this ruling, same-sex couples who wanted a divorce might not have had access in their own state. Now, every state must accept the fundamental right to divorce, which means spousal rights and benefits such as alimony apply to everyone in every state.

IRA rollovers

A spouse who inherits an Individual Retirement Account from a deceased spouse is allowed to defer taking distributions until age 70 ½ and stretch payments over his or her lifetime. Distributions over time allow the tax-deferred investment to grow and can save federal and state income taxes over taking a lump-sum distribution. This benefit is now available to all married same-sex couples at the state level. To ensure they receive these benefits, married same-sex couples should double check their IRA beneficiary designation forms.

Summary

The recent Supreme Court ruling opens up a variety of tax and benefit opportunities in states that previously did not recognize same-sex marriage. Couples in these states should assess their situation to ensure they are taking full advantage of everything the change in law offers.

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