Estate planning for LGBTQ+ couples | Fendrick Morgan Law

Estate Planning for LGBTQ+ Couples: 3 Important Facets You Should Know

Every couple needs an estate plan. For LGBTQ+ couples, a properly constructed estate plan is crucial in order to ensure that each respective partner’s intentions are achieved.

Previously, many LGBTQ+ couples simply could not provide for one another as completely as a traditional married couple. For example, married couples typically provide for their spouse as the primary beneficiary under their estate planning documents, as well as through retirement assets and life insurance proceeds. For unmarried LGBTQ+ couples, if such couples provided for one another in their estate plan, this could trigger unfortunate tax consequences.

However, in 2015, the United States Supreme Court ruled that same-sex couples had the fundamental right to marry and that such marriage would be legally honored in every state. Now, LGBTQ+ couples have estate planning options not previously available to them prior to this ruling.  Some important estate planning options are as follows:

Tax Benefits

Married couples enjoy many tax benefits. Specifically, a married person may transfer an unlimited amount of assets to their spouse over the course of their lifetimes and at death without triggering any tax. This is referred to as the unlimited marital deduction.

Additionally, each person currently has a Federal Estate Tax Exemption amount of $12.92 million. Upon the death of the first spouse, married persons can make a “portability election,” which allows the surviving spouse to absorb the deceased spouse’s unused Federal Estate Tax Exemption amount, thereby combining it with theirs. These tax benefits were previously unavailable to LGBTQ+ couples.

Furthermore, New Jersey has an inheritance tax on assets distributed at death to certain beneficiaries. Specifically, any assets passing to a spouse at death do not trigger inheritance tax, but assets (other than life insurance) passing to a non-spouse partner trigger inheritance tax at a rate of 15%. Accordingly, married LGBTQ+ couples can now avoid triggering inheritance tax on assets passing to one another at death.

Social Security Benefits

The Social Security Administration determines whether a person is eligible for certain benefits based on their marital status. For example, a person or their spouse may be entitled to a higher benefit amount due to their marital status, and their children could also be entitled to benefits based on their relationship with their parent or their parent’s spouse. Additionally, married LGBTQ+ couples are now entitled to survivor benefits. This means that if their spouse passes away, they may be entitled to receive benefits based on their spouse’s work history or a higher benefit amount from their deceased spouse’s Social Security benefits.

Gift Splitting

“Gift splitting” is a tactic for married couples to reduce the size of their taxable estate. Specifically, a married person can gift twice the amount of the annual gift exemption amount (currently, $17,000) to a recipient and it will be treated as if both spouses contributed to the gift. Allowing this combination of each person’s individual exemption is a great way for a married couple to lessen the assets of their estate.

If you and your spouse need to review your estate plan, please contact our office to schedule a consultation with one of our knowledgeable attorneys today.

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