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By Ray C. Radigan and Donna L Walton, TD Wealth
Recent Supreme Court decisions have given same-sex married couples access to all the estate planning tools that heterosexual spouses have been using for years. Here is a brief overview of some of the elements and issues involved in effective estate planning for same-sex couples.
Essential estate planning documents. A will, durable power of attorney, and healthcare power of attorney are the backbone of your estate plan. A will specifies how your assets will be distributed upon your death. Without one, state law will make this determination. This is especially important for unmarried couples: while most state laws make some provisions for the surviving spouse, no assets will pass to an unmarried partner. Instead, the assets will usually pass to the decedent's closest living relatives. A durable power of attorney allows someone to act on your behalf and manage your financial affairs in the event of incapacity. Conversely, a healthcare power of attorney allows someone to make health-care decisions on your behalf if you are unable to do so.
Unlimited marital deduction and portability. When one spouse dies, he or she can leave an unlimited amount of property to the surviving spouse without any estate tax consequences. The surviving spouse can also take advantage of the concept of portability, which means the surviving spouse has access to the deceased spouse's unused estate tax exemption.
Revocable trusts for flexibility and privacy. A trust allows you to designate which individuals and/or charitable organizations will receive your assets when you die. It can also specify how your assets are to be managed and distributed during your lifetime, provide protection in the event of illness or incapacity and designate a successor trustee who can step in if you become incompetent or disabled.
Gifting. Married individuals can now give unlimited assets to their same-sex spouse without any gift tax consequences. Same-sex married couples also qualify for gift splitting, meaning each spouse is treated as giving half the property gifted by the other.
Asset titling. Be certain that the titling of your assets is coordinated with the rest of your estate plan. This is especially important if you are unmarried and have a personal residence that you wish for your partner to continue living in after your death.
Income tax planning. Married couples may file a "joint" income tax return or file as "married filing separately.” Unmarried partners do not have this option. Marriage may lower or increase the federal income taxes you and your partner owe, depending upon your individual income levels.
Beneficiary designations. The beneficiaries you name in your life insurance policies, bank accounts, and retirement accounts will become the owners of the accounts upon your death. Without designating a beneficiary, these assets will simply pass to your estate when you die.
Parenting. For some same-sex couples, becoming a parent can bring a host of complex legal challenges. Specialized attorneys and other professionals can identify your options and guide you through the process.
At TD Wealth, we offer a team of advisors that can help you review your current plan and navigate your options. We will work with you and your legal and tax advisors to develop a customized plan that fits your goals.
This article is based on information available in February 2019. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.
TD Bank, TD PCW, their affiliates, and TD Wealth employees do not provide legal or tax advice. Any tax advice in this material is not intended or written to be used, and cannot be used, by any recipient for the avoidance of penalties under federal tax laws or for promotion, marketing or recommendation to another party any transaction or matter described in this material. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.