On June 26, 2015, The U.S. Supreme Court ruled in a 5-4 decision in Obergefell v. Hodges that same-sex marriage must be recognized and licensed in all 50 states. This is a landmark decision that makes significant changes to the definition of marriage.
For practical purposes, it also makes monumental changes to estate, retirement, and financial planning for same-sex married couples countrywide. It is important to note that all following information only pertains to couples that are legally married, and not to couples in civil unions, domestic partnerships or unmarried relationships.
Prior to this Supreme Court decision, it was important to have estate planning documents up to date and financial planning done specifically to work around the inequalities between how the law treated same-sex married couples vs. heterosexual married couples. Since this distinction is no longer the law of the land, following are some significant estate and financial planning changes important to be aware of.
Significant Estate and Financial Planning Changes for Same-Sex Married Couples
Health Care Proxy/Durable Power of Attorney
Now the presumption will be in all states that a spouse is next of kin. Prior to the ruling, same-sex married couples had to keep documents with them when traveling to non-recognition states to prove their relationship status, when necessary.
Marital AB trust planning and other strategies previously only available to legally recognized married couples are now available to all married couples in all states.
When an individual dies without a will, or intestate, the law of the state applies to determine who inherits the assets. Prior to this ruling, a same-sex spouse in a non-recognition state was not considered “next of kin” and therefore would not inherit. It would be up to the state to determine how the estate would be divided amongst close living relatives. Now, legally married same-sex couples may inherit even under intestacy laws.
Legally recognized U.S. citizen spouses have the ability to gift an unlimited amount to each other with no tax consequences both during life and after death (unlimited marital transfer). All same-sex married couples now have this right for both federal and state purposes, which is a significant change.
State Estate Tax
After the U.S. v. Windsor decision on June 26, 2013, exactly two years before the Obergefell v. Hodges ruling, all same-sex legally married spouses received federal recognition as spouses for estate tax purposes. However, non-recognition states that had state estate tax did not give same-sex married couples treatment that was equal to that of heterosexual married couples. This distinction is now gone.
Social Security Benefits
All legally married spouses will be able to receive spousal retirement and survivor benefits regardless of their location. Previously, if a couple lived in a non-recognition state, it was unavailable as it was based on the state of residency’s laws.
Since same-sex marriage is now legal, same-sex couples can obtain a divorce in their state of residence no matter where they got married.
A legal spouse will now be recognized for retirement plan purposes regardless of state. This was previously not the case prior to the U.S. Supreme Court ruling.
Same-sex married couples can now file joint state and federal returns like heterosexual couples in any state.
Deceased Spouse Unused Exemption Amount (DSUEA)
If the entire estate tax exemption is not used at the death of the first spouse, the rest can be used by the surviving spouse at his or her death. This is only open to legally married couples, so it now can be used by same-sex couples in all states.
This Supreme Court ruling has opened many doors for equal treatment under the law regardless of who someone is married to. There may be a transition period as governments and private industry work to implement this law in its practical applications, from updating systems to putting new procedures in place. As a result, it is still a best practice to maintain up-to-date estate planning documents and beneficiary designations. As always, it is important to consult your personal tax and legal advisor for specific advice on your individual situation.