Both state and federal laws influence the financial and estate-planning implications of same-sex couples legalizing their unions.
Same-sex couples won a battle on Tuesday, May 14, 2013, when Minnesota Governor Mark Dayton signed into law equality for same-sex couples wishing to get married. This landmark coincided with a Supreme Court decision validating same-sex marriage in the 12 states that have legalized it.
Additionally, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) said same-sex couples who are legally married in jurisdictions that recognize their union will be treated as married for federal tax purposes even if they move to a jurisdiction that does not recognize same-sex marriage. While the IRS has clarified matters for federal taxes, many other legal issues remain unresolved.
David Rephan, attorney-at-law and partner at Chestnut Cambronne Law Firm in Minneapolis, Minnesota specializes in elder law and estate planning.
"Estate planning is absolutely critical because, without it, the law requires a court action when guardianship or conservatorship [of an estate] is needed," David said.
When asked what he would consider a "short list" of the most important actions married couples, particularly newlyweds, need to take to plan for their estates, David answered:
- Get your estate-planning documents in place! This may require meeting with an attorney or qualified professional.
- Update your estate-planning documents if you already have them in place. Be sure to be careful about the language you use; for example "spouse" as opposed to "partner" or "companion." David's explicit advice? Make it crystal clear!
- Decide whether or not you and your spouse should file jointly or separately for state and federal taxes. There are benefits and detractors to both designations.
- Update all of your insurances to add your spouse.
- Finally, invest in long-term care insurance.
Other considerations include knowing the "fail safes" built into the law to uphold spousal benefits. For example, the law requires an equitable distribution of assets, which protects the surviving spouse from being completely cut-out of the deceased's estate -- even if the deceased spouse left a will contrary to this effect.
It's also important to know that, if you're unable to, a spouse is given priority to make health care decisions on your behalf through guardianship in the absence of a health care directive. They would also have priority for making any decisions about a deceased spouse's remains.
In terms of wealth, if one spouse enters a nursing home and the other happens to have more assets, those assets are exposed to cover the cost of the care. This also works in reverse. However, Social Security Benefits are a big advantage for married couples, David says. Spouses have the right to collect on each other's work records, and can defer their own benefits in favor of the other spouse's if it is more advantageous to the couple's financial wellbeing.
So how does estate planning differ for same-sex couples versus heterosexual couples? Well, there are both state and federal issues influencing the financial implications of same-sex couples legalizing their unions -- and many, many unknowns. For example, same-sex couples need to be careful if they move from one jurisdiction that recognizes their marriage to another that does not. Properties and estates can be put at risk, David says, especially if properties are owned in different states. Would a probate judge in another state treat the couple as married? This is just one of the unanswered questions married same-sex couples will need to grapple with as more states legalize their unions and their communal assets grow.