TAX AND ESTATE PLANNING FOR SAME-SEX COUPLES
There are an estimated 650,000 same-sex couples in the United States, and 114,000 of them are legally married. In addition to Washington D.C., the following states permit same-sex couples to legally wed: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire,New Jersey, New York, Rhode Island, Vermont and Washington.
The U.S. Supreme Court’s 2013 decision in United States v. Windsor to strike down the Defense of Marriage Act means same-sex couples who are legally married will now be eligible for federal benefits, and significantly changes their financial planning options. As a result of this decision, the surviving spouse in the Windsor case was able to get back $363,053 in federal estate tax.Same-sex couples now have access to the same retirement benefits, tax breaks and health coverage as married heterosexual couples.
Here are some of the things that same-sex couples should be considering:
Estate Planning
Same-sex couples with at least one partner with a high-net worth can now have more financial planning tools at their disposal. They can now take advantage of the estate tax exemption, and leave one another an unlimited estate without being taxed.
Portability. The surviving spouse also has the ability to add the unused estate tax exclusion (now $5.25 million) of the spouse who died most recently to their own. This concept is called
“Portability”. To take advantage of portability, the executor handling the estate of the spouse who died will need to transfer the unused exclusion to the survivor, who can then use it to make lifetime gifts or pass assets through his or her estate. The prerequisite is filing an estate tax return when the first spouse dies, even if no tax is owed. This return is due nine months after death with a six-month extension allowed. If the executor doesn’t file the return or misses
the deadline, the spouse loses the right to portability.
Making Gifts. Currently, you can give up to $14,000 each year to as many recipients as you would like without incurring gift tax. Spouses can combine this annual exclusion – a process called gift-splitting – to jointly give $28,000 to any person tax-free. Spouses can gift-split by giving $14,000 each, $28,000 from a joint account or $28,000 from one of their individual accounts. These restrictions apply whether you make outright gifts to individuals or put the funds into trusts for their benefit. Any gift that’s more than the annual exclusion counts against the lifetime gift tax exclusion – the amount that each individual can give away during life without triggering gift tax. Once you have passed the limit, which is $5.25 million, gift tax of up to 40% applies. Couples can also gift-split with their applicable exclusion amount and together transfer up to $10.5 million through lifetime gifts.
Income Tax Planning – Filing Status
You may now have a refund waiting for you to claim! In states that recognize same-sex marriage, married couples will no longer have to file with the IRS under a single status. They now have the option to file Married Jointly and therefore save a lot in Federal income taxes. Couples who had to file single can go back two years
(and some cases three years) and filed amended income tax returns changing their filing status
and getting a refund of the overpaid tax.
How much can you save?
Example 1:
Scott and Doug were legally married in 2011. Scott earned $100,000 in annual wages in 2011 and 2012.
Doug was a full-time student and earned no income in either year. Scott filed Single for Federal Income Tax Purposes in both years.
| Year | Amount Paid | Amended Return | Savings |
|---|---|---|---|
| 2011 | $18,964 | $12,506 | $6,458 |
| 2012 | $18,738 | $12,191 | $6,547 |
| Total: | $13,005 | ||
Example 2:
Same facts except Scott earned $200,000 in annual wages.
| Year | Amount Paid | Amended Return | Savings |
|---|---|---|---|
| 2011 | $47,762 | $38,750 | $9,012 |
| 2012 | $47,311 | $38,319 | $8,992 |
| Total: | $18,004 | ||
Social Security/Retirement Benefits, IRA’s and other Retirement Accounts
If one spouse dies, and he or she had higher Social Security benefits, the remaining partner can now claim them. There is now also the ability to stretch out an IRA account. If one spouse dies leaving the other spouse as beneficiary of an IRA or retirement account, the surviving spouse can basically claim it as his or her own That spouse doesn’t have to take it if he or she is not of retirement age, and can choose to stretch it out further. The surviving spouse can roll the assets into his or her own IRA and postpone required minimum distributions until the year after he or she turns 70½.
Estate Taxes
If your spouse died in the last three years and a Federal Estate Tax Return was filed and estate tax paid, we can review this return and the applicable estate plan documents to see if an amended estate tax return can be filed to secure a refund of the overpaid taxes.
Our firm is geared up to review your past three years of Federal income tax returns and estate plan documents to make sure you are taking advantage of all the Federal tax benefits available.we can amend and file your Federal income tax returns to claim your tax refunds and amend or prepare estate plan documents to fully avail you of these benefits. Even if your prior income tax returns were audited, we can file amended income tax returns to change the filing status to Married Filing Joint. For many same-sex couples, the submission of amended Federal income tax returns should result in an overpayment of Federal income taxes and the IRS sending you a check. Don’t delay as the Statute Of Limitations to claim an income tax refund is two years.
For more information on estate planning and the documents involved, click here.
For answers to your questions about estate planning or for estate tax help, contact the Law Offices of Jeffrey B. Kahn, P.C. For a prompt evaluation of your situation, we encourage you to complete our Estate Planning Questionnaire or call us toll-free at 866.494.6829 to schedule a consultation.
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