President Barack Obama's support for same-sex marriage hasn't made it any easier for gay spouses to claim their partners' retirement benefits or to continue running a jointly owned business in the event of a partner's death.
Careful estate and
financial planning, however, can help the nation's 900,000 gay couples plan for retirement, protect their assets and otherwise care for one another financially.
But they'll need professionals who are familiar with the national mosaic of state and federal laws.
The federal Defense of Marriage Act, passed in 1996, specifically states that marriage must be between one man and one woman. As a result, same-sex couples can't take advantage of the income tax benefits of a joint federal income tax filing or other important federal benefits.
These include passing
Social Security benefits on to a surviving spouse, avoiding estate taxes when inheriting a spouse's assets, giving gifts tax-free to spouses, receiving federal disaster aid benefits and others.
And though 44 states don't recognize same-sex marriages, some do extend some legal recognition to gay couples in the form of taxation of domestic-partner benefits and state Family and Medical Leave Act benefits.
And even in the District of Columbia and the six states that recognize same-sex marriage — Connecticut, Iowa, Massachusetts, New Hampshire, New York and Vermont — couples have to file different income tax documents with their state and federal returns.
“It's way more complicated now,” said Joshua Rubenstein, national head of the trusts and estate practice for Katten Muchin Rosenman LLP. “You have to think about a lot of things because of the disconnect in the two systems.”
That disconnect is not completely insurmountable, Mr. Rubenstein said.
“These things can be gotten around with careful planning,” he said. “But it takes special structuring by people who have thought it all through.”
Sherri Hankal of Houston said it was difficult to find a knowledgeable financial adviser with specific suggestions about how she and her partner, Shirley Knight, could protect their financial future.
“It was hard to find a financial planner who knows her way around the limitations that the law and financial institutions have for gay couples,” Ms. Hankal said.
Previous advisers had given them simplistic answers when they asked for advice. “Open an E-Trade account together,” was one adviser's suggestion on how to be financially responsible and accountable for each other.
A MINEFIELD
Estate taxes can be a potential minefield because same-sex couples don't have the same exemptions as heterosexual couples, said Rian Moulton, legal director of Human Rights Campaign.
Same-sex couples who own a business together, therefore, must be especially prepared to ensure that the business won't be financially destroyed if one of the partners dies and his or her estate must pay taxes on the value of half of the business, Mr. Moulton said.
“The default rules are all against you,” Mr. Rubenstein said.
The financial and estate plans of same-sex couples should consider whether their state provides surviving-partner rights to the estate, and they should include strategies to lower tax liabilities on larger estates. Even in states such as Illinois, which grants partners in a civil union many of the rights traditionally reserved for spouses, couples still need certain protections, such as durable powers of attorney and advance health care directives, said independent estate attorney Manish Bhatia.
Just because hospitals in Illinois will now recognize a same-sex partner's rights to make decisions for an incapacitated partner, “what if there is an accident while they are on vacation in another state that doesn't recognize unions?” he asked.
“Since there are ambiguities between states, and federal law doesn't recognize the unions, the best solution for inheritance issues, health care decisions, guardianship and other concerns is to have a proper estate plan in place,” Mr. Bhatia said.
Retirement planning is especially complicated for same-sex couples, said financial planner Cathy Pareto, whose eponymous firm in Miami oversees $60 million in assets. Ms. Pareto began working with Ms. Hankal and Ms. Knight about five years ago.
With any type of defined-benefit plan or pension, a surviving partner in a same-sex union is not going to receive the benefits he or she would if considered a spouse, she said. Similarly, he or she won't be allowed to receive the partner's Social Security benefits.
RECENT CHANGES
In recent years, however, the laws have changed to allow a surviving partner to receive assets from a 401(k) and convert them into an inherited IRA, instead of having to cash out the plan and incur taxes. However, a federally recognized marriage is still required to allow the survivor to convert the assets into his or her own IRA and defer distributions until age 701/2, Ms. Pareto said.
Advisers with same-sex-couple clients also should help them think about issues such as health care coverage, which varies among companies. Many insurers allow domestic partners to qualify for benefits, but those are taxed, unlike the tax-free benefits provided to a spouse.
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