posted on February 27th 2014 in Austin CFP Team Posts & Your Financial Advisor with 0 Comments /

wedding picThe U.S. Supreme Court struck down the Defense of Marriage Act (DOMA), which was a federal law that sought to exclude same-sex couples from the definition of spouse. But last year, the United States Supreme Court in U.S. v. Windsor, struck the exclusion, holding it to be unconstitutional.

But I’m Not Gay

Many people may think the law doesn’t concern them because they are straight and their advisors may not disagree. But, as evidenced by the Cheney family, straight clients often have gay relatives, and most of us at least know of someone who had children who were seemingly happily married to a spouse of the opposite sex only to later declare themselves gay.

The Cheney family’s public struggle with the issues surrounding same-sex marriage highlights how what may have been thought to be a fairly straightforward estate plan can turn into a battle over legal definitions and rights that are constantly evolving.

Who Is a Family Member?

Should estate plan documents define marriage and children or leave the definitions explicitly vague? What if the heir’s state laws don’t mirror those of the grantor’s state? The easy answer is to simply leave all spouses, lovers and other life partners out of the discussion and only allow descendants to inherit.

But that doesn’t address the myriad of possibilities.

Definitions

In a typical estate plan a spouse is the person married to the grantor or a beneficiary. The law in at least 17 states recognizes this as a person of the same sex and we can likely expect more to follow. Descendants have traditionally been defined as the “children of the grantor and the descendants of such children” and usually addresses whether only blood descendants are included. The definition may be expanded to include the children of the grantor’s spouse. But few definitions cover today’s scientific possibilities.

For example, few estate plans have a definition of descendants that addresses a child born after the donation of an egg to a same sex partner, residing with the egg donor in a state that does not recognize same sex marriages, who then gave birth — as was found in a recent Florida case.

Taxes and Employee Benefits

Although it had originally denied the status of spouse to Edith Windsor for purposes of the unlimited marital deduction, in Notice 2013-72, the Internal Revenue Service, joined by the U.S. Department of the Treasury, ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The notice tells us that same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes regardless of whether they live in a state that does not recognize same-sex marriages.

This tells us that the definition of spouse in an estate plan and the ancillary documents will have income and tax consequences.

What to do Next

Regardless of your religious, moral or other beliefs, every estate plan should evidence your intent. Why? Because the law may not now and/or may not in the future be in line with these convictions. Don’t let this issue be one that could cause strife in your family. Talk to your team of trusted advisors about what’s important to you and how to accomplish your goals.

about the author: Kermit Johns

kermit640x640Kermit Johns is a Financial Planner who has extensive experience addressing the financial goals and the issues that same-sex couples face by offering his knowledge of comprehensive investments, and tax and estate planning. Kermit has served as an executive director in Corporate Tax with Time Warner Inc. and as a corporate tax manager for the Hertz Corporation. Kermit previously served as a managing director of his own registered investment advisory, Johns & Wilkinson LLC, in New York and Austin, where he successfully developed business relationships with individuals and couples, not-for-profit agencies, and foundations. Kermit was an FINRA-Licensed Securities Advisor and principal since 1997.

Learn more and/or Contact Kermit Johns

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