When New York residents Mark Strong and Craig Partin married in New York last October, their marriage wasn’t recognized by the federal government. So the duo took extra planning steps to make sure either spouse could afford the estate tax on what he would inherit from the other.
"We each took out a tremendous amount of life insurance, compared to what we might otherwise have, so that the survivor wouldn’t be burdened by the need to pay estate tax," Strong says. They pay $300 monthly for coverage.
Now the couple is considering letting those policies lapse. They stopped needing them in June when the U.S. Supreme Court changed the couple’s financial and legal status by striking down a central feature of the Defense of Marriage Act. The ruling represents a major change for financial planners and their clients who are in – or are considering – same-sex marriages.
"The federal benefits mean that there’s more reason for gay people to get married now. Some people had been holding out on getting married, waiting for federal recognition," says James Tissot, Strong and Partin’s planner and the owner of Prism Planning in New York.
Same-sex couples now get the same federally derived legal and financial benefits that heterosexual married couples receive. So in states where same-sex marriage is legal, advisors should revisit married same-sex clients’ plans with a particular eye toward federal issues – including those pertaining to Social Security and veterans’ benefits, taxes and housing.
The ruling also allows the Obama administration to take executive action to broaden benefits to same-gender couples in states where gay marriage isn’t recognized; as of early July, the federal government was already expanding spousal benefits to cover gay and lesbian married employees.
Among the planning issues affected by the high court ruling are:
* Transferring property to a spouse during a client’s lifetime without owing federal gift tax.
* Inheriting property from a spouse without paying federal estate tax.
* Filing federal taxes jointly.
* Receiving a spouse’s Social Security benefits.
* Receiving pension survivorship benefits.
* Receiving spousal benefits without owing taxes on the benefit value.
For Gay Clients, DOMA Ruling s Financial Impact | On Wall Street