Windsor Ruling Expands Estate Planning Prospects for Married Same-Sex Couples

In June, the U.S. Supreme Court ruling in United States v. Windsor invalidated the federal Defense of Marriage Act (DOMA).  The Windsor ruling has led to a number of recent federal rule changes from the IRS, Social Security Administration and other agencies that provide new estate planning opportunities for legally married same-sex couples.

Earlier this month, the IRS ruled that legally married same-sex couples would now have the same status as opposite sex married couples for income, estate and gift tax purposes.  This new rule applies to all married same-sex couples no matter where they live, provided they were wed in states that recognize same-sex marriage.

These rule changes open up a whole new estate planning landscape for married same-sex couples, including:

Portability – a deceased spouse’s unused estate tax exemption may transfer to the surviving spouse’s estate tax exemption.

Marital deductions – ability to make unlimited transfers to each other without incurring federal gift or estate tax, during life or after death.

Gift splitting – spouses can combine their annual gift tax exemptions of $14,000 per year to make a gift to anyone up to $28,000 without incurring a gift tax.

Retirement plan and IRA beneficiary designation – married same-sex spouses can be the sole beneficiary of qualified retirement plans and IRAs; surviving spouse can now take advantage of special rules when it comes to rollovers and delayed distribution of retirement account assets.

Community property – married same-sex spouses living in community property states can retitle assets to get a full step-up in income tax basis following the death of one spouse.

Tax refunds – married same-sex couples may be entitled to income, gift or estate tax refunds for 2011, 2012 and 2013.

Life insurance – couples with individual life insurance policies may want to consider changing to survivor policies to maximize death benefits.