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Follow on Google News |  Recent DOMA Ruling Can Cause Financial ConfusionSeattle-Area Financial Advisor, Dale Terwedo, Provides Guidance For LGBT Couples
By: Terwedo Financial Services, LLC The financial needs of same-sex couples are no different from those of any other couple—they want to provide for each other, their families, and themselves. However, constantly evolving legislation and judicial decisions have created enormous financial planning complexities. They may feel overwhelmed or confused by all of the information and need help to understand how to best plan for their futures. The repeal of Section 3 of DOMA grants same-sex married couples access to perhaps more than 1,100 federal benefits and protections. From a financial planning perspective, some of the key areas to review include: Retirement Planning Retirement Accounts Same-sex married couples are now subject to the same rules applicable to other couples regarding the deductibility of IRA contributions and Roth contribution income limits. They can now make spousal IRA contributions even if one spouse doesn’t have any earned income. In addition, a surviving spouse can now “roll over” the IRA or other qualified retirement plan of their deceased spouse into their own retirement account, maintaining the tax-deferred status and possibly deferring the required dates of distribution. Social Security Married same-sex couples are now able to apply for spousal Social Security benefits. In general, this can be a good idea if one spouse’s benefit is significantly higher than the other’s. Additionally, the repeal of Section 3 of DOMA allows for divorced same-sex couples to be eligible for divorced spouse’s benefits as well as survivor benefits. However, there is a lot of gray area for both of these provisions if one of the ex-spouses moves into a state that doesn’t recognize same-sex marriages. Estate Tax Planning Gifting Every U.S. citizen can make gifts of up to $14,000 per year (in 2013) without having to pay a gift tax. Same-sex married couples are now eligible to gift up to $28,000 total without incurring taxes by “splitting” Portability Under current law, in addition to the $14,000 annual gift limitation, individuals cannot give more than $5,250,000 to a non-spouse individual during their lifetime or after death without tax consequences. However, since the repeal of Section 3 of DOMA means that same-sex married couples are now legally recognized as spouses, they can exceed the $5,250,000 amount without paying taxes so long as they are giving to their spouse, due to the unlimited marital deduction. Unlimited Marital Deduction Married same-sex couples can now make unlimited transfers of assets to one another while living or after the death of the first to die, without incurring federal gift or estate tax, making a substantial impact in estate planning decisions for many couples. Income Tax Planning Property and Account Titling The Unlimited Marital Deduction allows married couples to share and transfer titles in real property to each other without gift tax consequences. Same-sex couples who marry and live in states that recognize same-sex marriages now benefit from this as well. As for couples who previously paid a gift tax for sharing property titles, it is currently unknown whether or not the government will refund those taxes previously paid. Protective Claims for Tax Refunds Because legally married same-sex couples can now file federal income tax returns jointly, they may also be able to file protective claims for potential refunds from taxes paid in previous years if legally married during that time. In general, there is a three-year limitation for refund of claims that would likely apply in this case. However, some couples who file joint claims retroactively may actually end up owing more taxes by doing so if it bumps them into a higher tax bracket. What to Do Next It’s important to review your financial plan to ensure that it remains aligned with your tax and estate plans. Update the beneficiary information, review your estate planning documents, check into your protective claim eligibility, and work with your financial advisor, CPA, and attorney to make sure that you’re making the most of these changes. If you think you may need additional help, Terwedo Financial Services, LLC has created a free and quick online assessment tool at (http://www.tfsadvisors.com/ Challenges and Opportunities Ahead Although Section 3 of DOMA has been struck down, don’t expect to see smooth sailing from here on out. The full impact of these decisions has yet to be determined as Federal and state governments as well as the IRS will need to issue further guidance to same-sex spouses and their financial planners before the full effects of the repeal will be realized. Although most will likely be positive for same-sex couples, it’s important to keep in mind that they will likely require major changes to financial, tax and estate plans. As further information is released, a good advisor will provide ongoing guidance for their same-sex clients to make sure that they can take advantage of both the current and future legislation changes. About Terwedo Financial Services, LLC (http://www.tfsadvisors.com) With more than thirty years of financial planning and wealth management experience, Dale Terwedo of Terwedo Financial Services is one of only 13 Accredited Domestic Partnership AdvisorSM (ADPA®) designees in the state of Washington.* Disclosures The information provided is not intended to be a substitute for specific individualized tax, legal, or estate planning advice. All information is the most current data available at the time of publication. It is based on sources deemed reliable, but no warranty or guarantee is made at to its accuracy or completeness. The views expressed are not necessarily the opinion of FSC Securities Corporation. The views expressed are not necessarily the opinion of FSC Securities Corporation. End
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