Tax Planning

Financial planning for same-sex couples has changed immensely since 2015 Supreme Court marriage ruling

Complexity accompanying tax, estate and Social Security planning for LGBTQ couples now largely mitigated four years after landmark decision

Jun 21, 2019 @ 4:41 pm

By Greg Iacurci

Financial planning for same-sex couples has undergone a vast transformation in the four years since the Supreme Court made same-sex marriage a right nationwide, according to advisers who work with LGBTQ clients.

"It's changed in a lot of ways," said Brian Thompson, founder of Brian Thompson Financial.

Marriage comes along with numerous rights not available to single people, Mr. Thompson said, and advisers must now weigh these differences during the financial planning process.

Achieving a similar financial result for same-sex couples as their married, heterosexual counterparts used to require a much higher degree of wizardry via complicated workarounds, whereas that's no longer the case, advisers said.

Same-sex couples who are married can now engage in straightforward liberties like filing a joint tax return and accessing the same workplace health insurance. A concept as simple as transferring money between unmarried partners' bank accounts could have had tax implications if one individual transferred more than the $15,000 annual gift limit, Mr. Thompson said.

"It removes a huge amount of complexity," said Lorraine Johnson, wealth consultant at LifeTime Asset Management. "You used to have to go around your elbow to get to your thumb."

(More: How a preacher's son won 51 LGBT clients)

For example, if one partner of an unmarried couple was entitled to a pension from a private company, the other spouse wouldn't be a survivor beneficiary. In the past, a couple might have had to purchase an additional life insurance policy, typically an expensive whole life policy, to ensure the surviving partner would have adequate income if predeceased, said Leighann Miko, founder of Equalis Financial.

In fact, some older same-sex couples who have been together for decades have chosen to remain unmarried partly to avoid the hassle of unraveling so many advanced planning techniques, Ms. Miko said.

"In some regards things haven't changed, but in other they have," she said.

The Supreme Court ruled on June 26, 2015, that the Constitution guarantees a right to same-sex marriage, requiring all states to grant and recognize same-sex marriage. The decision in Obergefell v. Hodges came two years after a ruling in another Supreme Court case, United States v. Windsor, which found married same-sex couples were entitled to federal benefits.

Ms. Johnson said the largest impact of the rulings on a day-to-day basis has been on client psychology. Same-sex married couples now have to think about the concept of marital property and the implications of assets no longer being separately owned.

"All these people who had never been able to get married before went out at the same time [to do it]," she said. "It was news to a whole bunch of people all at once."

There's also been a profound impact on things such as Social Security and estate planning.

Married same-sex couples can now claim Social Security benefits based on a spouse, which for certain couples can "play a huge role in their retirement happiness and ability to afford their lifestyle," Ms. Miko said.

And if a married couple had jointly owned property and one of the spouses were to pass away, the whole property would receive a step-up in basis at death (if the couple lived in a community property state). For non-married couples, only half the property would get a step-up in basis — potentially exposing the survivor to a big capital gain down the road, Ms. Miko said.

Having a legally recognized marriage also has helped in situations where one person in a couple is hospitalized but doesn't have an advanced medical directive. These situations could be contentious, especially when family members of the hospitalized person do not accept the union, Mr. Thompson said. But now, those family members can't prevent a married partner from making medical decisions on their spouse's behalf.

Perhaps most significantly for financial advisers, more young LGBTQ individuals are reaching out for help with their finances relative to a decade or more ago, Ms. Miko said.

"They are the legal equivalent to their non-LGBTQ counterparts," she said. "And there's a level of security in knowing that."


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