I wish all of my devoted readers (Hey Mom, I’ll call soon) a prosperous new year full of many blessings. Welcome to 2020 and I hope you dream big!
We ring in the new year with certainty on January 1st as the clock strikes midnight. Similarly, life also has the certainty of Death and Taxes.
I believe it is important to help clients work towards staying aware of these inevitabilities.
Death and Taxes can have more unique issues if you are in the LGBT community. This is due to recent, yet major, legislative changes.
The United States Supreme Court ruled on June 26, 2015 that the Constitution guarantees a right to same sex marriage. The Obergefell v. Hodges case required all states to grant and recognize same sex marriage. To read the specific ruling, it can be viewed at https://www.supremecourt.gov/opinions/14pdf/14-556_3204.pdf.
The US Supreme Court ruled in 2013 (United States v. Windsor) that married same sex couples were entitled to federal benefits. To read the specific ruling, it can be viewed at https://www.supremecourt.gov/opinions/12pdf/12-307_6j37.pdf.
These rulings have transformed same sex couples’ financial planning. Prior to same sex marriage legalization, LGBT couples planning wasn’t so straightforward. LGBT couples weren’t able to file joint tax returns, access workplace health insurance plans, have marital property, claim Social Security benefits based on a spouse or have certain medical rights.
The legality for same sex marriage is so new, many LGBT couples aren’t aware of the legal ramifications of marriage. Some ramifications could be:
- Marriage could increase taxes (commonly known as the Marriage Penalty)
- Named Beneficiaries on Qualified Accounts
- Social Security Planning
- Medical Planning
- Estate Planning
LGBT couples who have been cohabitating are not always aware of the marriage penalty that can increase taxes on a couple filing jointly by as much as 12%.1
The beneficiary(ies) listed on any retirement plan will be individual(s) who receives the assets upon the death of the plan holder. The retirement plan owner’s last will and testament will not override the beneficiary designation on any qualified retirement plan. Same sex couples who have recently begun financial planning together may still not be aware of this.
Married same sex couples can now claim Social Security benefits based on their spouse. This can play an important role in any couple’s retirement income.
Legally married LGBT couples may experience a situation when one spouse needs medical attention (e.g., hospitalized). By nature, these can be stressful times. This stress can become amplified when an Advanced Medical Directive doesn’t exist while other family members may not accept the marriage. When legally married, family members can’t prevent a married partner from making medical decisions on their spouse’s behalf.
Same sex married couples should think about marital property and the implications of assets no longer being separately owned. If a married couple jointly owns property and one spouse dies, that entire property would receive a step-up in basis at death (assuming the couple lives in a community property state). For non-married couples, only half the property would get a step-up in basis, which may expose the surviving spouse to a big capital gain when the property is liquidated.
While there have been strides supportive of the LGBT community, there is still work to be done. For example, there is no comprehensive federal law that protects LGBT individuals from getting fired due to their sexual orientation. This lack of protection can lead to job insecurity and pay inequalities.
A new year brings hope. Here’s to continuing progress for the equal treatment of all.
If we can be a resource for you, email JAMES.KNAPP@KNAPPADVISORY.COM.
James C. Knapp, AIF®, BFA™, CPFA®
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.