DOMA Decision: What it means for estate planning

By Linda T. Cammuso

The Commonwealth of Massachusetts legalized same-sex marriage in 2004. While the intent was to put same-sex couples on equal footing with heterosexual unions in this state, federal law prevented those couples from enjoying the same rights as their heterosexual counterparts.

Without federal recognition, same-sex spouses were required to file separate federal income tax returns, they could not receive Social Security survivor benefits and they were ineligible for some federally funded programs such as Medicaid — even those programs administered by the state.

All that changed when the U.S. Supreme Court ruled, on June 26, that the Defense of Marriage Act (DOMA) is unconstitutional and that it is discriminatory for the federal government to treat legally married gay couples any differently than it treats legally married heterosexual couples. By striking down DOMA’s definition of marriage, the Supreme Court decision now makes as many as 1,000 federal laws and regulations available to same-sex married couples.

This ruling has a profound impact on estate planning and asset protection planning. Expanded financial and estate planning benefits that have become available to same-sex couples include:

•Federal Estate Tax Marital Deduction: Same-sex married spouses may now transfer unlimited assets to each other, both during their lifetime and following the first spouse’s death, without having to pay any federal estate or gift tax — providing that the recipient spouse is a U.S. citizen.

•Gift splitting: Currently an individual can give up to $14,000 to as many recipients as they wish without incurring a gift tax. Same sex couples may now combine this annual exclusion, called gift splitting, to give any person $28,000 free of gift tax implications.

•Retirement plans: The Employee Retirement Income Security Act of 1974 now applies to same-sex couples. It gives same-sex spouses full spousal rights to each other’s retirement accounts, including spousal rollover planning, which allows the surviving spouse to rollover the deceased spouse’s IRA or other qualified retirement plan to the surviving spouse’s own account and postpone the required minimum distribution until the year following the survivor’s 70th birthday.

•Veteran’s benefits: Previously domestic partners have been ineligible for many military benefits such as health care and survivor payments. The Department of Defense intends to make the same benefits available to all military spouses as soon as possible.

•In the realm of long-term care/nursing home planning, Massachusetts had previously clarified that same-sex marriage would be recognized under the MassHealth regulations. However, the expanded federal protection means same-sex spouses can now engage in typical nursing home planning — such as gifting assets to each other — without the federal gift tax, estate tax and capital gains tax consequences they previously faced.

For the same-sex couple who has an estate plan, it’s time to create a new one to take advantage of all the opportunities available. For those who have not done planning — it’s time begin the process to fully protect yourselves and your loved ones.