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New Estate and Financial Planning Opportunities for Same-Sex Couples

by Stuart Furman, Esq. .
Saturday Nov 28, 2015

On June 26, 2015, in the landmark case of Obergefell v. Hodges, the United States Supreme Court ruled that same-sex marriage is a fundamental right guaranteed both by the Due Process Clause and the Equal Protection Clause of the Fourteenth Amendment.

The ruling also mandated that all states must issue marriage licenses to same-sex couples and that states must recognize qualified same-sex marriages performed in other states. Due to this landmark ruling, states must provide same-sex couples with the same marital benefits that were previously only awarded to heterosexual couples.

So what does that look like, and what does that include?

Estate Considerations

Marital Deduction: Same-sex couples can now take advantage of estate tax provisions including the "unlimited marital deduction." This means that assets can be transferred back and forth between spouses with no estate or gift tax consequences. Prior to the Windsor and Obergefell rulings, every transfer between same-sex marriage (SSM) spouses would be considered a gift, which could require a gift tax return to be filed or even a gift tax to be paid.

Portability: For larger estates, the surviving spouse can now "port," or transfer, the deceased spouse's remaining unused estate tax exemption to the surviving spouse, giving that person a larger estate tax exemption when he or she dies.

Inheritance determinations where there is no estate plan in place:
The new ruling now brings those couples and their individual families within the California Probate Code dealing with intestate succession, so that if no estate planning documents were in place when a spouse died, the code would provide some protection for the surviving same-sex spouse. Even though these benefits are now extended to same-sex couples, the vast majority of married couples, whether same-sex couples or not, will benefit from proper estate planning that will help to prevent a long and costly pro- bate process. Keep in mind that I am not advocating the use of the intestate succession statute for estate planning.

Income tax issues

Joint Returns: Filing of a joint (marital) tax return may produce a lower combined tax than filing two single tax returns, which same-sex couples were often forced to do in the past. Filing amended returns for prior years may also be an option, which could produce a refund due to the lower combined tax bill for those years.

IRA and Other Retirement Accounts

A legally married spouse has the right to be the sole and primary beneficiary of an IRA or other retirement account. It is important to revisit beneficiary designations to assure compliance with this rule. Additionally, the same-sex spouse survivor can now "roll" the qualified plan of the deceased spouse to their own plan, allowing tax deferral for the surviving spouse's retirement if the beneficiary designations are properly shown on the account.

Social Security

Same-sex couples should report their spouses to social security to preserve all the benefits that would vest in a surviving spouse.

Long-Term Care Planning

Veterans Benefits: Military veterans have a little- known pension that can supplement home care, assisted living and board and care. If there is a recognized spouse, the benefit is often greater than if the claimant is an unmarried person. Other benefits for surviving spouses are now available for all spouses, no matter their orientation.

Medi-Cal Planning: Long-term care can be financially devastating for heterosexual couples and prior to Windsor and Obergefell, it was even more devastating for same-sex couples. Many of the techniques that I have used in California to protect a couple's estate and allow them to access Medi-Cal were not available to same-sex couples. For example, if a person was institutionalized in a nursing home, a heterosexual spouse is entitled to retain over $119,000 of non-exempt assets (for 2015) and thus a good portion of the estate, was then able to be preserved in the case of heterosexual couples. This benefit was long denied to same-sex couples and the institutionalized spouse was required to have only $2000 in non-exempt resources.

Additionally, states are mandated to "recover" their benefits back to the extent of the estate after both the husband and wife had died, which placed the surviving same-sex spouse in a difficult position, as recovery would commence even though the same- sex partner was still living. This left same-sex couples without the protection of the stay on recovery until the death of the second spouse. This rule is now available to all couples in California.

Real Estate Considerations

Community Property: Same-sex couples should revisit ownership and titling of any jointly-held real estate property. In California, changing the vesting of real estate to "community property" can offer numerous tax benefits that are otherwise unavailable, if not expressly stated as such on the couple's real estate deed.

Reassessment: Upon the death of a spouse in a SSM in which the real estate transfers to the surviving spouse, the property will no longer be reassessed due to a "change in ownership." Carrying this principle further, transfers between SSM couples to their children and/or the other spouse's children, can now occur without reassessment, under the benefits provided by parent-child reassessment exclusion provisions under California law.

Tax Basis Issues: If same-sex couples take advantage of converting the titles on their real estate to "community property," as we mentioned above, they can receive the benefit of a "step-up" in the tax basis of the property upon the death of the first SSM spouse. This means that upon the first spouse's passing, the valuation (for tax purposes, also called the "tax basis") will be reset to the market value upon the date of death.

This is extremely valuable for real estate that has appreciated or increased in value. The practical effect of this is that all of the capital gains that were inherent in the property are wiped out up to the market value that existed on the date of death of the first SSM spouse. In the past, married couples have seen hundreds of thousands of dollars saved with this basis adjustment, upon sale of homes after the first spouse has passed away.

From an estate planning perspective, now that marital equality is a nationwide right, same-sex couples can and should be sure to take advantage of the estate planning techniques that were previously only available to heterosexual married couples.

Stuart Furman, Esq. is an elder law attorney and Of Counsel to Zeldes, Haeggquist & Eck, LLP, a San Diego law firm. He is the author of "The ElderCare Ready Book" and "The ElderCare Ready Pack" available on

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