Yesterday, the Proposition 1 ballot initiative passed in North Carolina. I can honestly say that I was in tears. Our company has worked with dozens of couples from North Carolina over the years, including one of our 5/15/12 weddings and one of our 5/19/12 weddings. Two couples this month, from (yet another) state which treats them as second-class citizens. More
Free Seminar: Planning for the Future: Retirement, Taxes, and Legal Issues facing the LGBT Community
Generally, employer-based health insurance, even if it requires the employee to contribute to the cost of premiums, provides a significant tax savings since the employee’s portion is purchased with pre-tax dollars. Federal law, however, considers the amount spent on providing health insurance coverage to a same-sex spouse is taxable income, so same-sex couples often owe more in taxes than their opposite-sex counterparts.
There is one exception to the general rule of federal taxation. If a same-sex spouse qualifies as a “dependent” under IRS rules without regard to his or her status as a spouse, the value of the benefit to the “dependent” is not taxed as wages to the employee. Also, in states that recognize the marriages of same-sex couples, there is no state income tax on the value of spousal health insurance benefits.
Some same-sex couples actually pay less overall by maintaining separate health insurance coverage either through employers or by purchasing individual plans. In Massachusetts, individuals can compare the cost and coverage of health insurance plans online at www.mahealthconnector.org.
LGBT Families must also consider how to cover dependent children. If parents maintain two separate health insurance plans, they must research the impact of adding children to either plan. Note also that if the children were not born to one of the spouses during the marriage or if only one spouse is the children’s legal parent, the non-parent spouse will not be able to add the children to her health insurance plan.
If same-sex couples receive benefits through an employer-sponsored domestic partnership plan, specifically for unmarried couples, then marriage may disqualify an individual from benefits. Same-sex couples should check in advance with employers to ensure that they are covered one way or another.
In Massachusetts and Connecticut, a marriage revokes all previous Wills unless they were made specifically in contemplation of a marriage. Many same-sex couples previously drafted legal documents to protect one another and are now marrying later in life. If they wish to distribute assets according to their own wishes, not according to prescribed state statute, they must complete new Wills after marriage.
Keep in mind, however, that before gay marriage became legal, same-sex couples could omit a partner from a Will in order to benefit other children, individuals, or charities. Now that they are married, a spouse is entitled to a share of the estate even if she or he were omitted from the earlier Will. Certain government benefits, including MassHealth in Massachusetts, will consider the refusal of a spousal share as a gift to the other beneficiaries named in the Will, with dramatic consequences for eligibility (see last week’s post).
Same-sex couples with significant assets must also remember that federal estate tax law, and the federal definition of marriage, determines whether married couples can make tax-free transfers between spouses. Therefore, while an individual can leave hers or his entire estate to an opposite-sex spouse, which will only be taxed upon the death of the second spouse, this benefit is not available to same-sex married couples.
MassHealth views the couple’s combined assets in order to determine eligibility, so if the healthier spouse has significant personal wealth, he or she will need to spend down countable assets until they total less than approximately $112,000 (not including a home worth less than $750,000) in order for the less healthy spouse to qualify for coverage.
On the other hand, if the couple’s combined countable assets are $112,000 or less, the spouse in need of long-term care will qualify for MassHealth. If the couple were not considered married for the purposes of MassHealth, the spouse in need of care would have to spend down to $2,000 before he or she would qualify and would not be able to transfer any assets to a non-married partner.
Generally, if an individual were to transfer assets to someone other than a spouse within 5 years of applying for MassHealth coverage, he or she would be subject to a disqualification period of 1 day for every $267 transferred. Since same-sex marriages are recognized, spouses are allowed to transfer assets between themselves freely without incurring a disqualification period.
Coupled with Federal gift tax law, however, transferring assets between same-sex spouses may still incur tax liability. An individual can transfer $13,000 per year to any person, but when significant asset transfers are on the line, taxes may be imposed. Each person can transfer up to $1,000,000 in a lifetime, but each gift made during life is deducted from that total. While the Federal government provides that “married” persons can transfer assets freely between one another without gift tax liability, this applies only to opposite-sex spouses as a matter of Federal law.
Trusts help to keep your wishes private because they avoid probate; they involve only the Trustee and beneficiaries, not the court.
Irrevocable Trusts can protect assets from creditors, but require relinquishing authority over assets.
Well-crafted Trusts are difficult for third-parties to contest and are therefore more resilient against attack by hostile family members.
For couples with significant assets, an Irrevocable Life Insurance Trust can shelter policy proceeds from estate taxes regardless of marital status.
A Testamentary Trust can support a surviving spouse without jeopardizing eligibility for important government benefits.
A Credit Shelter Trust applies the exemption from either State or Federal estate tax available to all persons regardless of marital status, minimizing the tax on passing on the combined assets at the death of the second spouse/partner.
A Grantor Retained Income Trust can transfer wealth at a discount from the wealthier to the less wealthy spouse or partner in same-sex couple relationships.
Transacting business. A DPOA allows a named agent to act on behalf of an individual with regard to bank accounts, property, and other assets. By naming your same-sex partner/spouse as your agent, you ensure that regardless of marital status, your partner/spouse has the authority to act on your behalf, in your home state and around the world.
Outlining specific powers. A DPOA can be narrowly tailored to include only the powers you wish your agent to have, or it can provide blanket authorization in all financial matters. There are many instances, however, in which a blanket authorization is not enough to ensure that your agent has the right to act on your behalf. Many banks/institutions/government agencies require specific language of authorization. This is why it is vital that a DPOA be tailored to your exact needs and reflect your exact wish.
Precluding guardianship/conservatorship. Should your spouse become unable to make decisions with regard to finances and related matters, authority under a DPOA allows you to step into his or her shoes. This arrangement precludes the need for a court-appointed guardian/conservator, which would otherwise be necessary to gain control and can be both costly and time-consuming.
Evidence of intent. Like a Health Care Proxy for medical decisions (see last week’s post), a DPOA for finances provides further evidence of your intent to rely on your same-sex partner/spouse in the same way that opposite-sex spouses traditionally rely on one another. If there is any possibility that your family members would seek to challenge your wishes and declarations, a DPOA is another very powerful piece of evidence against their claims.
Because laws do change. While no viable challenges to marriage equality in Massachusetts loom on the horizon, the entire country remains a battlefield for same-sex couples. State and Federal laws may change for the better or worse. Naming your spouse as your health care proxy, can provide protection in an uncertain future.
Discriminatory health care professionals. No matter what the law says, discriminatory individuals may try to stand in your way when you are faced with the challenge of making health care decisions for your spouse. If your spouse appoints you as health care proxy, you are empowered to make medical decisions on his or her behalf and access medical records, regardless of marital status.
Hostile family members. Even if your blood relatives are not currently hostile to your relationship, it is possible that under the heightened stress of medical crisis, they could attempt to assert their authority as greater than that of your spouse. In Massachusetts and other states that have embraced marriage equality, you have the law on your side, but it is always helpful to have explicit documentation of your spouse’s appointment of you as an agent for health care decision-making and access to medical records.
Travel considerations. When you travel beyond the borders of states that recognize marriage equality, your marriage may not be recognized. If you or your spouse fall victim to a medical emergency out-of-state or out-of-country, your marriage may be ignored. By producing a copy of your Health Care Proxy, you will maintain your rights to make decisions about your spouse’s care and have access to your spouse’s medical records.
Because laws do change. While no viable challenges to marriage equality in Massachusetts loom on the horizon, the entire country remains a battlefield for same-sex couples. State and Federal laws may change for the better or worse. Naming your spouse as your health care proxy can provide protection in an uncertain future.
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