January 20, 2015
Article by Shauna Dell, Tax & Business Services Manager, "Expanded Benefits Arrive for Same-Sex Spouses," Featured in Daily Business Review
Pursuant to Internal Revenue Service Revenue Ruling 2013-17, the place of celebration determines a same-sex couple's marital status for federal tax purposes. That means as long as a couple was legally married in a state or another country that allows same-sex marriage, the IRS will recognize such marriage.
Same-sex marriage became legal in Florida on Jan. 6 as a result of Brenner v. Scott, the lead case on the issue. In this case, a U.S. district court ruled the state's same-sex marriage ban unconstitutional on Aug. 21, 2014.
The order was stayed temporarily; state attempts at extending the stay failed, with the U.S. Supreme Court denying a further extension on Dec. 19. With the stay expired and the case still under appeal, the state is permitting same-sex marriages.
Florida became the 36th state to legalize same-sex marriage. With almost 20 million residents, Florida is one of the most populous states to allow same-sex marriage.
With the right to marry comes an assortment of benefits for same-sex couples.
- Ability to file a joint federal income tax return. As a general rule, if one spouse earns considerably more income than the other spouse, overall savings can be achieved if the spouses file a joint return. Depending on the state you live in as well as the state you are filing in, you may have to file married or single. If you are living or filing in a state that doesn't recognize your marriage, you will have to file as single.
- Spousal rollover of an individual retirement account. Married same-sex couples can now take advantage of the "spousal rollover" upon the death of the first spouse. This means that the surviving spouse can treat the deceased spouse's IRA as his or her own and avoid an immediate payout of the account over his or her life expectancy. Without the rollover, the IRA becomes payable over the life expectancy of the oldest beneficiary of the account (referred to as the mandatory payout).
- Property benefits through "tenancy by the entirety." Florida recognizes the property ownership concept of tenancy by the entirety. This is a joint form of ownership afforded only to married individuals. The tenants by the entirety property is fully protected from such co-owner's creditors unless both co-owners are liable to the same creditor on the same claim. Because Florida now recognizes same-sex marriage, a same-sex couple can now take advantage of tenants by the entirety status real estate ownership.
- Florida homestead. Under Florida Constitution Article X, §4, if a property owner owns his or her primary Florida residence individually and is survived by a spouse or minor child, certain benefits and protections are afforded to the property as to the spouse and minor children. Because a same-sex couple is now considered "married" under Florida law, the spousal benefits succeed to the same-sex surviving spouse.
- Estate and gift tax planning. Married same-sex couples, in which both spouses are U.S. citizens, are now able to use the unlimited estate tax marital deduction at death to pass assets to a surviving spouse without incurring federal estate taxes. They also are able to pass any unused estate tax exemption, as well as any gift tax exemption to a surviving spouse. This is known as the portability election. In addition, a married same-sex spouse can now make a gift or transfer property to the other spouse without incurring a federal income tax or gift tax and can, as well, use gift splitting, whereby each spouse is treated as giving one-half of the property gifted by the other spouse.
- Intestacy. In Florida, same-sex spouses are now protected from being disinherited through a variety of statutorily mandated provisions. The surviving spouse is automatically protected from being disinherited by his or her spouse. As well, a legal spouse will now have a preference, under Florida statutes, to be appointed as the personal representative (executor) of a decedent's intestate estate and a same-sex spouse is no longer considered a legal stranger and is now recognized as next of kin.
- Divorce. When a same-sex marriage results in divorce, each spouse will now have rights to the other spouse's benefits under any retirement plan governed by ERISA. If the participant has not elected an annuity with survivor benefits, these benefits are transferred to the other spouse through a qualified domestic relations order, or QDRO, which is initiated by the nonparticipant spouse. Also, married same-sex couples will now be eligible for the deduction for alimony payments.
- Immigration benefits. Many immigration benefits are tied to marital status. For example, a non-U.S. citizen may obtain legal residency, and later citizenship status, when married to a U.S. citizen. In the absence of U.S. citizenship, a QDOT trust will allow a non-U.S. citizen surviving spouse to defer the payment of estate taxes.
The increased spousal recognition under federal and most state laws presents considerable planning opportunities for married same-sex couples. Planners can now achieve most, if not all, of the same-sex couple's planning objectives.