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DOMA Ruling May Have Estate Tax Planning Implications

Author: Frank L. Brunetti|July 12, 2013

DOMA Ruling May Have Estate Tax Planning Implications

The U.S. Supreme Court’s landmark ruling that the Defense Against Marriage Act (DOMA) is unconstitutional will have far-reaching benefits that change the paradigm of health benefits enrollment, retirement benefits, and tax planning. Regarding the latter, same-sex married couples may see sweeping changes to their estate tax planning and gift tax rules.

Under current tax rules, individuals can exempt $5.25 million of their estates from taxes, and may gift up to $14,000 in tax free income to as many people as they can afford for the 2013 year. These amounts double for married couples filing jointly. According to the previous law, same-sex couples were prohibited from utilizing the estate tax law to pass assets to spouses or make larger gifts to beneficiaries by filing jointly with a spouse. However, couples who live in states that recognize same-sex marriage will now have the same benefits as heterosexual married couples and may share assets without being subject to gift taxes. As a result, this may give them more flexibility when it comes to estate and gift tax planning.

The changes may also play a role in succession planning, particularly if same-sex married couples choose to pass assets, business interests and property to beneficiaries. Previous tax law would have prevented same-sex couples’ marital status from being recognized by the federal government. Therefore, couples would have been limited to gifting $14,000 in gifts and the $5.25 million estate tax exemption, rather than combining these amounts by filing jointly and passing more on to heirs.

As the ruling is still new and various parties – including employers and benefit providers – attempt to determine how the laws will apply to them, working with a legal professional may help couples navigate the law and make the most informed decisions to plan their estates effectively.

DOMA Ruling May Have Estate Tax Planning Implications

Author: Frank L. Brunetti

The U.S. Supreme Court’s landmark ruling that the Defense Against Marriage Act (DOMA) is unconstitutional will have far-reaching benefits that change the paradigm of health benefits enrollment, retirement benefits, and tax planning. Regarding the latter, same-sex married couples may see sweeping changes to their estate tax planning and gift tax rules.

Under current tax rules, individuals can exempt $5.25 million of their estates from taxes, and may gift up to $14,000 in tax free income to as many people as they can afford for the 2013 year. These amounts double for married couples filing jointly. According to the previous law, same-sex couples were prohibited from utilizing the estate tax law to pass assets to spouses or make larger gifts to beneficiaries by filing jointly with a spouse. However, couples who live in states that recognize same-sex marriage will now have the same benefits as heterosexual married couples and may share assets without being subject to gift taxes. As a result, this may give them more flexibility when it comes to estate and gift tax planning.

The changes may also play a role in succession planning, particularly if same-sex married couples choose to pass assets, business interests and property to beneficiaries. Previous tax law would have prevented same-sex couples’ marital status from being recognized by the federal government. Therefore, couples would have been limited to gifting $14,000 in gifts and the $5.25 million estate tax exemption, rather than combining these amounts by filing jointly and passing more on to heirs.

As the ruling is still new and various parties – including employers and benefit providers – attempt to determine how the laws will apply to them, working with a legal professional may help couples navigate the law and make the most informed decisions to plan their estates effectively.

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