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Estate Planning Prospects for Married Same Sex Couples

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In June 2013, the U.S. Supreme Court ruling in United States v. Windsor invalidated the federal Defense of Marriage Act (DOMA). The Windsor ruling has led to a number of federal rule changes from the IRS, Social Security Administration and other agencies that provide new estate planning opportunities for legally married same-sex couples.

For example, the IRS ruled that legally married same-sex couples would now have the same status as opposite sex married couples for income, estate and gift tax purposes. This new rule applies to all married same-sex couples no matter where they live, provided they were wed in states that recognize same-sex marriage.

These rule changes open up a whole new estate planning landscape for married same-sex couples, including:

Portability – a deceased spouse’s unused estate tax exemption may transfer to the surviving spouse’s estate tax exemption.

Marital deductions – ability to make unlimited transfers to each other without incurring federal gift or estate tax, during life or after death.

Gift splitting – spouses can combine their annual gift tax exemptions of $14,000 per year to make a gift to anyone up to $28,000 without incurring a gift tax.

Retirement plan and IRA beneficiary designation – married same-sex spouses can be the sole beneficiary of qualified retirement plans and IRAs; surviving spouse can now take advantage of special rules when it comes to rollovers and delayed distribution of retirement account assets.

Community property – married same-sex spouses living in community property states can retitle assets to get a full step-up in income tax basis following the death of one spouse.

Life insurance – couples with individual life insurance policies may want to consider changing to survivor policies to maximize death benefits.

If you would like to have a talk about estate planning, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Wealth Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.