Couples rushed to the altar last October after same-sex marriage was legally recognized in New Jersey.
But we’re willing to bet few of them have rushed to see an estate planning attorney or financial adviser to make sure their new legal status is reflected in their financial or estate plans.
“There are significant changes, all for the better,” says Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna. “Marriage is a unique legal status conferred and recognized by governments all over the world. It brings with it a host of reciprocal obligations, rights and protections.”
He cites a 1997 General Accounting Office report that found civil marriage brings with it at least 1,049 legal protections and responsibilities from the federal government alone. Civil unions bring none of these critical legal protections, he says.
Federally, married couples can expect:
- Social Security benefits upon death, disability or retirement of a spouse, as well as benefits for minor children.
- Family and Medical Leave protections to care for a new child, or a sick or injured family member.
- Workers’ Compensation protections for the family of a worker injured on the job.
- Access to COBRA insurance benefits, so the family doesn’t lose health insurance when one spouse is laid off.
- ERISA (Employee Retirement Income Security Act) protections, such as the ability to leave a pension, other than Social Security, to your spouse.
- Exemptions from penalties on IRA and pension rollovers.
- Exemptions from estate taxes when a spouse dies.
- Exemptions from federal income taxes on spouse’s health insurance.
- The right to visit a sick or injured loved one, and have a say in life-and-death matters during hospitalization.
Not everything is automatic, though. If you’re now married, you need to take action.
First, Meckler says, review beneficiary designations for life insurance, annuities and pensions, which are distributed separately from your wishes in a will.
Then, speak to your tax preparer regarding withholding amounts — because they’re different for single taxpayers and married taxpayers.
“One other major factor is Social Security benefits,” Meckler says. “Married couples are entitled to many different options when it comes time to start Social Security than (are) single people.”
The next step is to contact an estate planning attorney.
Estate planning for same-sex couples is, for the most part, no different than for heterosexual couples, says Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.
She says a proper estate plan includes:
- Last will and testament — a document in which you share your wishes, importantly naming a guardian for minor children.
- Power of attorney — a document by which you give someone the power to handle your financial affairs should you be unable to do so.
- Living will or advance directive for health care — a document by which you appoint someone to handle health care decisions should you be unable to do so and also provide guidance for your agent in making such decisions.
A big potential issue for married couples is estate taxes.
“Any amounts passing from the decedent to the surviving spouse pass free of both federal and state estate tax. This is referred to as the marital deduction,” Romania says, noting there are some restrictions if the surviving spouse is not a U.S. citizen.
In 2014, the IRS allows each taxpayer to pass $5.34 million tax-free to anyone. This is the federal lifetime gift and estate tax exclusion, sometimes called the unified credit exemption.
New Jersey is not as generous, with an exemption amount of $675,000.
“Estates which may not be subject to federal estate tax may be subject to New Jersey estate tax,” Romania says. “In addition to the estate tax, New Jersey imposes an inheritance tax on transfer at death to anyone other than a spouse, civil union partner, domestic partner, parent, grandparent, descendant, stepchild or charity.”
The American Taxpayer Relief Act made permanent the concept of “portability,” Romania says. This means a surviving spouse may be able to use the unused unified credit exemption of his or her “last deceased spouse.” But portability is not an available option to reduce the New Jersey estate tax, she says.
Romania recommends same-sex couples who executed estate planning documents before June 26, 2013 (the date the Supreme Court upheld a lower court ruling that said the Defense of Marriage Act was, in part, unconstitutional), or who were married in New Jersey, review their existing documents. “If (you and your spouse are) now entitled to take advantage of the federal estate and gift tax marital deduction or related marital benefits, an estate planning attorney may suggest alternative arrangements to save on transfer taxes or otherwise simplify the prior estate plan,” she says.
And that, over a lifetime, could save a big chunk of change.