Estate Planning and Tax Benefits for Same-Sex Couples: What You Need to Know
Marriage offers a range of estate planning and tax benefits that same-sex couples should be aware of. Whether you're married or in a committed partnership, it's essential to understand the options available to protect your rights. Here’s an overview of key benefits for married couples and alternative strategies for non-married couples.
Titling Assets as Community Property with Right of Survivorship
In California, since 2001, married couples can hold property as “community property with right of survivorship.” This form of ownership allows property to automatically transfer to the surviving spouse at your death without going through probate. The surviving spouse benefits from a “full step-up in tax basis,” effectively eliminating any capital gains tax on the property, which makes it easier to sell without tax liability. If you're not married but want to share property with your partner, consider transferring your property into a trust and consult an estate planning attorney about the tax consequences of different ownership structures.
Retirement Account Rollover
When a spouse inherits an IRA or workplace savings account, they can roll over the account into their own IRA to maximize tax savings and investment growth. This is an advantage available only to surviving spouses. For IRAs, both IRAs must be the same type—Traditional to Traditional or Roth to Roth. If you’re unmarried, ensure your beneficiary designations are updated so that your partner can still inherit your IRA, though the tax benefits may not be as favorable as for a surviving spouse. It’s generally not recommended to pass IRA assets through a will or trust, regardless of your marital status.
Tax Savings for Property Inherited from Your Spouse
The unlimited marital deduction allows a surviving spouse to inherit an unlimited amount of assets from their spouse without facing estate tax. Additionally, portability provisions of federal estate and gift tax laws allow the surviving spouse to use any remaining portion of the deceased spouse’s estate tax exemption, enabling them to make additional tax-free gifts and reduce estate taxes when they pass. Non-married couples, however, must rely on the individual estate tax exemption (for 2016, this amount was $5.45 million).
Better Protection If Your Spouse Dies Intestate
In California, if your spouse dies without a will or trust, their assets are distributed according to intestate succession laws, a process known as probate. Typically, the surviving spouse inherits all community property and one-third of separate property. However, if you're not married, the law dictates that your property will go to your closest blood relatives instead of your partner. California does not recognize common-law marriages, so unmarried couples should have wills and trusts in place to ensure that their assets go to the person of their choice, rather than by default.
Priority for Financial Decisions and Conservatorship
If you become incapacitated, your spouse can make important financial decisions on your behalf without needing additional legal documentation. Non-married partners, however, must have a power of attorney to make similar decisions. For individuals who are unable to manage their finances, a court-appointed conservator is often required. Most states give priority to a spouse when appointing a conservator. If you're unmarried, it’s wise to establish a power of attorney for finances and an advance healthcare directive, specifically designating your partner to make financial and healthcare decisions on your behalf. You can also request that the court appoint your partner as your conservator if needed.
Conclusion
Whether you're contemplating marriage, already married, or never plan to marry, it’s important to carefully consider who will take care of you if you're incapacitated and who will inherit your property and assets upon your passing. These decisions are central to your estate plan. Meeting with an estate planning attorney can help ensure that your wishes are carried out and your rights are protected. Learn more about the services we offer or contact us today for a free consultation!