NEW YORK (MainStreet)Looking for some money in the mailbox, same-sex spouses may be rushing to file amended tax returns, in anticipation of a sizable refund check. The Supreme Court's landmark decision ruling the Defense of Marriage Act as unconstitutional will certainly have a significant impact on the financial planning of married same-sex couples, but while many things have changed, some stay the same and many questions remain. The IRS is still reviewing the decision and has yet to issue new guidance to taxpayers -- especially concerning the estimated $200 million in tax refunds to some 75,000 married same-sex couples.
What hasn't changed
"Every couple in a long-term committed relationship, whether married or not, should create a mutually developed financial plan addressing income, expenses, savings, investments and major purchases," says Marty Martin of Aequus Wealth Management in Chicago. "Every couple ought to have a will and, depending upon their situation, also have in place ways to transfer assets without having to go through probate -- such as joint bank accounts, payable upon death bank accounts and life insurance policies. Depending upon the state, each couple should also have a health care power of attorney, as well as a general power of attorney."
Martin notes that another example of what has not changed is that couples of all types can give up to $14,000 per year to another person as a gift, without being penalized by taxes.
What has changed
Married same-sex couples are now recognized by the federal government in the same manner as married opposite-sex couples, entitling them to specific benefits unavailable before. But there is a caveat.
"Federal recognition does not mean state recognition," says Martin. "For instance, a married same-sex couple is able to file jointly under the federal IRS regulations but not necessarily under state law -- unless the state legally recognizes this same-sex couple as married. In essence, there is still a lot of variation depending upon which state you happen to live."
Key financial planning considerations for same-sex married couples can now include:
- Consider filing as married filing jointly beginning in 2013, or file an amendment for 2012.
- Apply for a tax refund going back three years or 2009.
- Take all deductions and exclusions as allowed by married opposite-sex couples.
- Take the 100% marital deduction for any property that passes from the deceased spouse.
- For estate planning purposes, equalize assets between spouses.
- Claim the marital deduction for gift and estate tax purposes.
- Name your spouse as beneficiary of a qualified retirement plan.
- Determine income eligibility for Medicaid given that both incomes may now be counted rather than only a single income.
- Determine eligibility for any means-tested federal government programs such as Supplemental Social Insurance (SSI).
Remember though, for tax related benefits your Federal filing status is determined by your state filing status.
"The verdict has been reached by the U.S. Supreme Court at the federal level but the jury is still out in most of the 50 states," says Martin. "The bottom line is that you need to determine whether you are recognized as legally married in your domiciliary state, and if you move to another state, you may find yourself no longer being legally married."
States recognizing same-sex marriages now include California, Connecticut, the District of Columbia, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington.
--Written by Hal M. Bundrick for MainStreet