Same-sex couples now have the opportunity to provide for each other financially, in ways that were not available to them previously. Same-sex couples may use their retirement accounts and social security benefits to provide an income stream that will extend over both their lifetimes. They also may take advantage of important gift and estate tax savings techniques, including the unlimited marital deduction for lifetime gifts or transfers at death to a spouse. The marital deduction protects transfers to a spouse from the imposition of the federal gift and estate tax.
A married person typically takes advantage of the marital deduction either by making an outright transfer to a surviving spouse in a will or trust, or by creating a trust that provides income (and principal in some cases) to the surviving spouse for life. Either alternative can qualify for the marital deduction and, therefore, make assets available to the surviving spouse that are not reduced by federal gift and estate tax. Same-sex couples now can provide for each other using these well-established techniques.
A married person also has the option of using the portability election to transfer a deceased spouse’s unused federal estate tax exclusion to his or her surviving spouse. Taking advantage of the portability election means that a married couple makes certain they use both spouses’ exclusions, rather than just one exclusion, when transferring assets to beneficiaries after both spouses have died. Thus, they as a couple, may transfer the maximum amount possible to family, friends, and charitable organizations free of federal estate tax.
Under Ohio law, a surviving spouse has certain rights with regard to the probate estate of his or her deceased partner, because Ohio statutes give some basic protection to spouses against disinheritance. The surviving spouse’s rights include the right to one or more automobiles, transferred outside of the probate process; the right to live in the marital home for a period of time; the right to a spousal allowance; and the right to take a portion of the probate estate regardless of what the will provides.
Possibly the most important new opportunities that have opened for same sex couples are in the area of planning for retirement. They have an advantage that is given to all married couples who designate their spouse as the beneficiary of a qualified retirement plan, individual retirement account, or similar asset. Greater income tax deferral is available to surviving spouse beneficiaries, including same-sex spouses. Additionally, same-sex couples are eligible for spousal and survivor social security benefits, regardless of the state in which they reside. Because of greater income tax deferral and expanded eligibility for social security benefits, same-sex couples have the chance to create more financial security together.
Finally, the process of filing income tax returns, at the state and federal levels, has been confusing and complex for same-sex couples in recent years. In some cases, they have had to comply with one set of rules and procedures at the state level, with different rules applicable at the federal level. Consistent filing status, between federal and state income tax returns, is possible now. Some couples will have to evaluate whether they should file amended income tax returns for open years.
This is a good time for same-sex couples to review their wills and other estate planning documents, and to update beneficiary designations for retirement accounts. While reviewing one’s estate plan is not always a joyful process, in this particular case it could be!
Marilyn Maag is a lawyer with Porter Wright Morris & Arthur LLP. Maag is a partner in the Corporate Department, working with individuals and families on estate planning, trust and probate law issues.