DOMA is Dead: New Rights for Same-Sex Couples
In a long-awaited decision, the U.S. Supreme Court has found the main section of the Defense of Marriage Act unconstitutional.Â DOMA is the federal law that says that the federal government only recognizes a marriage between a man and a woman.Â It affected the application of more than 1,000 federal laws.
There will be many changes now that the federal government recognizes same-sex marriages and extends them the same protections as it extends to opposite-sex marriages.
Gift and Estate Taxes
- Maximum Flexibility.Â Same-sex spouses can now put language in their wills that gives a surviving spouse the option of putting some or all of the decedent’s assets in a trust that will not be taxed at the death of the surviving spouse.Â The surviving spouse can be the trustee, receive all of the income, and also withdraw principal if necessary.Â This gives couples maximum flexibility to wait and see what the assets and tax laws are at the time of the first death, and to fund the trust if it makes financial sense.Â This is a VERY useful estate planning tool that is finally available to same-sex couples.
If there is even the slightest chance that your assets will exceed $2 million during your lives, this option should be considered.
- Unlimited Gifts.Â Same-sex spouses can now make unlimited gifts to each other during life or when the first spouse dies without paying any gift or estate tax.Â You no longer need to worry that simply adding your spouse’s name to the title of your home or other assets becomes a taxable gift.Â (Also, spouses are exempt from Washington excise tax for the transfer of real estate between spouses, as is the case with Washington registered domestic partners.)
- Annual Gift Tax Exclusion.Â Same-sex spouses can now combine their “annual exclusions” for gift tax purposes.Â The annual exclusion is the amount one individual can give another individual without paying any gift tax.Â It is $14,000 per year in 2013; this amount is adjusted annually for inflation.Â Spouses can combine their exclusions so that one spouse can make a gift of up to $28,000 to someone from his or her own separate funds.Â To do this, the other spouse must sign a form and file it with the IRS.Â The gift will be treated as if half came from each spouse.
- Social Security.Â Same-sex spouses can now collect Social Security retirement benefits based on either their own earnings or their spouse’s Social Security retirement benefit.Â This option is very important when there is a large earning discrepancy between the spouses, or if one spouse did not earn income.Â When one spouse dies, the surviving spouse may qualify for Social Security survivorship benefits.Â This is true even if the decedent and the surviving spouse were divorced at the time that the decedent died.
- IRA and 401(k) Plans.Â If a surviving same-sex spouse inherits an IRA or 401(k) account, the surviving spouse can roll over the inherited assets into his or her own IRA.Â The required minimum distributions from the new IRA will be based on the surviving spouse’s age and can be deferred until age 70Â½.Â If the surviving spouse is younger than the deceased spouse, using the younger age can be beneficial for income taxes.Â Deferring distributions allows the assets in the IRA to grow tax-free for a longer period.Â Before the demise of DOMA, the same-sex surviving spouse had to begin taking distributions within a year of the spouse’s death – regardless of the surviving spouse’s age.
- Tax Returns.Â Same-sex spouses can now file joint returns and combine their incomes as well as their deductions.
- Health Insurance.Â Previously, an employee was taxed on employer-provided health insurance for a same-sex spouse.Â This will no longer happen.
- Divorce.Â Same-sex spouses who divorce and pay alimony or separate maintenance will now have the option of not being taxed on the payments if the ex-spouse reports the payments as income and if the arrangement is included in a divorce or separation instrument.Â If property is transferred from an individual to a former spouse as part of a divorce, this transfer will no longer trigger gain or loss on their income tax returns – thereby eliminating the need to pay taxes on this transfer.
All of the changesÂ listed aboveÂ will apply to same-sex married couples who live in Washington or one of the 8 other states and District of Columbia where same-sex marriage is legal.Â It will be up to the Obama Administration to decide if these changes will apply to same-sex married couples who reside in one of the 38 states that banÂ same-sex marriageÂ (for instance, if the couple married in Washington and then moved to Arizona).
If you have questions concerning same-sex marriage in Washington State, or how the new ruling may affect you, please feel free to contact me directly at206.223.3920, orÂ RMorrison@scblaw.com.