If you are part of a same-sex couple, the end of the Defense of Marriage Act (DOMA) was exciting news. One of the best aspects of the change is the extension of federal benefits to gay married couples in states that allow same-sex marriage. This may also raise challenging issues as married same-sex couples try to sort out how they will be affected.
“These changes are huge,” says Sherry Saucerman, first vice president and financial advisor at SunTrust Investment Services in Annapolis, Md. “But it will be a process as lawmakers look at the legal issues in the states that allow gay marriage.”
It is not exactly clear how the demise of DOMA will affect same-sex marriage efforts nationwide. However, couples living in the 14 states that recognize marriage equality are likely to see changes in these three areas:
Married same-sex couples will be able to file their federal taxes jointly starting with their 2013 returns. In some cases, couples may see a lower tax bill as a result, thanks to marriage-friendly tax breaks such as the earned income credit and child tax credits. However, couples whose joint income puts them in a higher tax bracket may face the “marriage penalty” for the first time, says Saucerman.
2. Government and workplace benefits
All married couples can now claim government benefits, including Social Security. “This is one of the huge benefits of the repeal,” says Saucerman. Married couples now have access to traditional Social Security spousal benefits. Additionally, when one spouse dies, the surviving spouse can claim the greater of the two spouses’ benefits. Married couples living in states that recognize same-sex marriage are also entitled to their spouse’s workplace benefits, including life and health insurance.
3. Estate planning
Legally married same-sex couples will also enjoy many estate planning provisions available to heterosexual couples. Pending government clarification of estate planning guidelines, they will likely be able to leave their spouses an unlimited amount of money without having to pay estate taxes. Previously, outside of legal marriage, gifts over the $5.25 million gift tax exemption triggered estate taxes. Gay married couples may also use the unified gift tax exemption, which a surviving spouse can continue to use upon his or her spouse’s death.
In addition, same-sex spouses may become spousal beneficiaries of 401(k)s and IRA retirement accounts. Beneficiaries other than spouses are subject to strict time and minimum distribution rules. However, an inheriting spouse doesn’t have to start taking distributions until age 70 ½.
As the ramifications of DOMA’s end continue to be sorted out, additional benefits may become available, according to Saucerman.
For now, Saucerman says, same-sex couples in the 36 states where same-sex marriage is illegal should continue to plan as though they do not have access to federal marriage benefits. For example, such couples may decide to include a trust in their estate plans to provide tax-efficient income upon the death of one member of the couple.
No matter where you live, these changes provide a good opportunity to talk to a SunTrust financial advisor, review your finances and be sure you are prepared for the state and federal provisions that affect you.