Much discussion around the Windsor case that struck down DOMA dealt with the estate tax. As a result of the decision, married same sex will indeed be privy to the same federal estate tax exemptions as their heterosexual counterparts. But the effects will go well beyond taxes at death. In fact, it is important for same sex couples to remember that federal recognition of their marriage will also affect retirement planning.
The sweeping ruling granting federal equality will likely mean that many same sex couples will need to “re-do” planning that they previously undertook to account for their unequal status under the law.
For one thing, many couples previously set up separate trusts in the hopes of bypassing excessive taxation and/or probate challenges upon one’s passing. In the past a same sex couple usually named each other as executors of their separate trusts. Those trust arrangement may need to be re-worked. Now, the couple can have a consolidated trust with both named as co-trustees.
In addition, couples may have to re-evaluate their available assets and income in retirement prep. For example, shared health benefits between spouses will no longer be taxed and couples will likely qualify for larger Social Security spousal benefits. All of this will need to be taken into account when planning for access to sufficient resources in retirement.
Those issues will need to be balanced on top of other basic retirement planning concerns that affect everyone. For example, many same sex couples have children. On average, same sex parents are older than the average heterosexual parent. This means that same sex couple may be facing children in college at the same time that they are close to retirement. Preparing for the significant financial crunch at that time is not easy, necessitating careful planning.
Time to Update
Are you a same sex couples who had legal documents drawn up before the DOMA ruling in order to protect your family? If so, it is critical to reevaluate to determine if changes need to be made.
Estate planning attorneys frequently discuss the need to “update” a plan in the face of major life changes, like a divorce or birth of a child. That same rule applies following major changes in the law, which includes this Supreme Court ruling. In fact, in many ways this ruling is akin to couples suddenly getting married for federal legal purposes–a change that demands a review of all long-term planning efforts.