A pair of Supreme Court rulings Wednesday will bring major changes for advisors who work with same-sex couples.
"Marriage between same-gender people gets federal recognition, and that means all the benefits, all 1,141 rights, that heterosexual couples get," says Arlington, Mass., planner Debra Neiman, who has many gay and lesbian clients.
In a historic victory for the gay rights movement, the court struck down a central feature of the Defense of Marriage Act, ruling that married same-sex couples are entitled to federal recognition. By declining to decide an appeals case regarding California's Proposition 8, which forbids gay marriage in that state, the court also effectively overturned that law.
But the resulting mix of rules may complicate planning needs for same-sex married clients, advisors say.
FEDERAL FINANCIAL BENEFITS
The justices' ruling on the Defense of Marriage Act extends federal benefits immediately to same-gender couples in states where they are legally able to marry, and allows the Obama administration to take executive action to broaden benefits in states where gay marriage is not recognized.
Key federal financial benefits available in the states that allow same-sex marriage, include the right to:
- Transfer property to a spouse during one's lifetime without owing federal gift tax.
- Receive property from a deceased spouse without paying federal estate tax.
- File federal taxes jointly.
- Receive a spouse's Social Security benefits.
- Receive pension survivorship benefits.
- Eligibility to use federal Family and Medical Leave Act to care for spouse.
But the court's ruling does not sanction same-sex marriage nationally. Nor does it force states that do not allow same-gender marriage to recognize same-gender marriages that were legalized in other states, because that portion of the law was not before the court.
As a result, planners nationally may find that some same-sex clients' financial lives are quite different from those in other states.
PATCHWORK OF RULES
In the 13 states that currently permit and recognize gay marriages, married same-sex couples will now enjoy the benefits conferred by both state and federal government. Before Wednesday's ruling, these clients benefited only from state laws recognizing their marriages.
In states that do not recognize same-sex marriages, however, same-sex couples could find themselves married from a federal point of view, but single as far as the state was concerned.
"You could end up with federal benefits, but no state benefits if your state doesn't recognize gay marriage," Neiman says. Couples in that situation might have to pay state estate tax when one spouse dies, for instance, depending on the estate's size.
LAYERED LEGAL PROTECTIONS
Planners who specialize in working with gay couples recommend a redundant, belt-plus-suspenders approach, in case clients are forced to defend their rights in unfriendly jurisdictions.
In addition to marrying, same-sex clients should also consider putting a domestic partnership agreement in place, in case they move or otherwise find themselves in a state that recognizes domestic partnerships but not same-sex marriage, says James Tissot, the owner of Prism Planning in New York.
Gay married couples will automatically inherit from each other, but should still make wills, to lessen the chance that another relative will successfully challenge for a share of property. They should title real estate as jointly owned, with the right of survivorship, so that primary homes, investments, and vacation homes remain the survivor's property.
Hospitals probably won't debate one spouse's right to make medical decisions for the other in right-to-marry states such as Minnesota or Massachusetts. But that may not protect a client who has a heart attack while visiting Florida, because rules about health care proxies are made at the state level, says Stuart Armstrong, a financial planner and accredited domestic partner advisor at Centinel Financial Group in Needham Heights, Mass.
In that situation, a health care proxy or other similar document would help protect the spouse's right to make medical decisions for an incapacitated patient.
"A layering of documentation, especially when you're in a hostile environment, carries weight," Tissot says. "If I have a will and another piece of paper and they both say the same thing, it's hard to refute that. It's hard for someone to say that you were coerced. There is definite intent and contractual agreement."
As more states recognize same-sex marriage -- and as gay couples move to states that recognize their rights -- these extras may become less important. For now, though, the smart money is on being safe, not sorry.
TELL US YOUR STORY: What question are your same-sex clients asking you in the wake of the Supreme Court's decisions? How are you answering those questions? Comment below.
- Same-Sex Couples: The Emerging Client Niche
- Same-Sex Couples Unaware of Financial Rights: Wells Fargo
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