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Adoption to Avoid Taxes — When Marriage Is Not Open to Same Sex Couples

The discrepancy in the law related to recognition of same sex unions may lead to some bizarre moves as part of an estate plan. That is particularly true when trying to avoid large tax burdens. For example, ABC News reported last week on a story out of Pennsylvania where a long-term couple decided to have one partner adopt the other to protect their long-term financial interests.

The couple has been together for four and a half decades. Yet, state law does not allow them to marry. As a result, even though they each planned to leave all of their assets to one another in the event of death, they would not be able to take advantage of inheritance tax exemptions for spouses.

One partner explained the situation regarding state inheritance taxes, “If we just live together and Gregory willed me his assets and property and anything else, I would be liable for a 15 percent tax on the value of the estate. By adoption, that decreases to 4 percent. It’s a huge difference.”

in deciding who would be the adoptive father and who would be the son, the couple did not have a choice. The younger partner’s actual father is still alive, and it is impossible to have two legal fathers. That only left the younger partner to become the adoptive dad.

This situation is being used nationwide as a reminder of the lengths that still need to be taken to protect same sex couples in states where marriage is not allowed. Following the recent high-profile gay marriage decisions from the U.S. Supreme Court there is some confusion regarding the legal battles still on the horizon. As this adoption situation makes clear, full equality is far from reality across the country.

And it is not just about money. Many couples worry about service preferences. For example, one partner in this case explained that he wants to be sure his preferences (and not his biological family’s wishes) are made clear, “I made all my end-of-life arrangements. I wanted to be cremated. With my Irish-Italian family, there would have been a four-day viewing and a Catholic mass and I don’t want to put Gregory through that.”

Equality in New York
Of course, the playing field is now level for local same sex couples. New York recognizes same sex marriage. With the Supreme Court decision related to DOMA last month, couples here are now afforded the same benefits as all others with regard to inheritance taxes and the many other benefits accruing to spouses under the law.

For help taking advantage of the benefits of these recent actions or to create a new estate plan to protect your family in the future, please visit our attorneys today.

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