LGBT Estate Planning Questions a Year After DOMA

A little more than a year ago, the United States Supreme Court struck down Section Three of the Defense of Marriage Act. In doing so, the federal government gave same sex couples access to the same federal rights as heterosexual couples. Many of these rights involve taxes, housing, Social Security, and estate planning issues. However, more than one year after the decision, many same sex couples are still struggling with understanding the new benefits available to them.

LGBT Benefits Study

In a study released by Wells Fargo, after one year of access to new federal benefits LGBT investors are struggling to make sense of the new legal landscape. In total, 83% of participants surveyed who were LGBT stated that they do not fully understand how new state and federal laws apply to them in the estate planning sector. Of those people, 67% were in legal same sex marriages. However, most troubling is that around forty percent of LGBT investors surveyed believed that the federal government would treat a state sanctioned civil union or domestic partnership just like a marriage, which is not the case.

LGBT Marriage in the United States

The shift in estate planning for LGBT individuals and couples has been monumental over the last year. However, adding to the confusion of all of the new planning opportunities are the challenges that come with differing states’ laws regarding same sex marriage. When the court overturned Section Three of DOMA last year they did not discuss Section Two, which gives the power to individual states to define marriage within their borders.

The federal government, nineteen states, and the District of Columbia all recognize same sex marriage and give these couples the same rights and benefits as heterosexual couples under state and federal law. Nevertheless, 31 states that have yet to recognize same sex marriage have a confusing mishmash of conflicting state and federal rules. This has a significant impact on estate planning, taxes, and other aspects of life for a same sex couple.

Effects of Conflicting Marriage Laws

The same study also looked at the reasons behind LGBT marriages after the repeal of Section Three of DOMA. For one thing, 62% of LGBT investors surveyed responded that the financial needs as a couple are different than those of a heterosexual couple, and 36% of LGBT participants stated that financial and legal rights are the most important reason to be married. Only 8% of heterosexual couples feel the same way.

For same sex couples residing in a state that has not recognized same sex marriage, estate planning can be an incredibly complex process. Same sex couples must file taxes as singles, and in terms of estate planning the surviving spouse will be forced to pay state inheritance taxes that a heterosexual spouse would be exempt from paying. However, the same surviving spouse will be exempt from paying the federal inheritance taxes because the federal rules apply to all same sex couples, regardless of the state where they reside.

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