With the Supreme Court’s recent repeal of DOMA (or the Defense of Marriage Act), a variety of financial planning opportunities for same-sex couples will be arising. Below are just some of the areas that might be affected by this landmark ruling.
Income Tax Benefits
- Increased Income Tax Filing Flexibility—The recent ruling appears to allow married same sex couples the option to file their federal income taxes separately or jointly – this could potentially result in tax savings.
- IRA & Roth IRA Rollovers—Surviving spouses who are the named beneficiaries of their deceased spouse’s Individual Retirement Accounts (IRAs) or Roth IRAs may elect to “roll the account over” into their own names. If they do so, they are entitled to designate beneficiaries and to take required minimum distributions based on their age.
- Annuity Rollovers—A surviving spouse who is the beneficiary of an annuity owned by a deceased spouse has ability to roll the annuity over into his or her name, become the annuitant and designate beneficiaries.
Federal Transfer Tax Benefits
- Unlimited Gift Tax Marital Deduction—Gifts between spouses who are US citizens are offset by the gift tax marital deduction.
- Split Gifts—A spouse has the option of allowing his/her $14,000 annual gift tax exclusion and/or his/her $5,250,000 lifetime gift tax exemption to be used to reduce gift taxes which might be due when the other spouse makes a significant lifetime gift.
- Unlimited Estate Tax Marital Deduction—Transfers upon a deceased spouse’s death to his/her surviving spouse (who is a US citizen) are exempt from federal estate taxes under the estate tax marital deduction.
- Portability of Deceased Spouse’s Federal Estate Tax Exemption—At the time of death, the surviving spouse may add the unused portion of a deceased spouse’s unified credit to his/her own credit; and the combined total may be used to reduce/offset federal estate taxes due.
Social Security Benefits
- Spousal Retirement Benefits— As early as age 62, qualifying workers become eligible to receive Social Security retirement benefits. Married individuals can choose between the larger of two possible benefits: their own, or a benefit equal to 50% of their spouse’s Social Security benefit. If they elect a spousal benefit, they may be able to switch back to their own benefit at a later time.
- Survivor Benefits—When a qualified married worker dies, his/her spouse can choose the larger of either a Social Security benefit based on his/her own work record or a survivor benefit equal to the benefit the deceased spouse was receiving at the time of his/her death.
The Employee Retirement Income Security Act of 1974 (ERISA) provides some important benefits to spouses of workers who are participants in qualified retirement plans through their employers:
- Spousal Benefits— Generally, spousal provisions in an employer’s employee benefit plans, including qualified retirement plans, welfare plans and fringe benefit plans should apply to same-sex spouses as well.
- Spousal Benefit Protection—The spouse of a vested plan participant is automatically sole beneficiary of the pension plan. Before death benefits may be paid, the surviving spouse must consent to waive his/her right to receive the benefit in a notarized writing.
- QDRO Protection— In a divorce, a court can award a percentage of a spouse’s interest in the other spouse’s IRA or qualified retirement plan benefit to be payable for their benefit.
Some Other Benefits
- Family Medical Leave Act—Spouses of qualifying employees are eligible for unpaid, job-protected leave for family and medical emergencies as well as continuing health insurance coverage.
- Health Insurance Coverage—Spouses are entitled to the options and protections available under the terms of the Affordable Care Act.
Of course, there is a still a healthy dose of uncertainty regarding the repeal of DOMA and all the planning issues it brings up. With this in mind, please make sure to consult a tax professional before using any of above information. Zenith Marketing will continue to inform our agents about upcoming developments if and when they become available.