Planning Considerations for Today’s Modern Families
The “traditional” American family has become a thing of the past. Today, most households no longer consist of a mother, a father and two-and–a-half kids. Rather, married households are on the decline, while unmarried and other non-traditional family households are increasing and becoming the “new normal.” Divorce and second and third marriages (or more) are commonplace. And same-sex marriage – with and without children – is on the rise. All the while, the tax law is trying to catch up. With a new President in office, and many new (and potential new) tax law changes on the horizon, planning is imperative for both married and unmarried taxpayers.
Two highlights of recent changes in tax law are worth highlighting here:
- PRIDE Act Update. Under the proposed Promoting Respect for Individuals’ Dignity and Equality, or “PRIDE” Act, legally married same-sex couples would be allowed to amend their individual tax returns for all previous years during which they were married. Current law allows married taxpayers to file amended joint tax returns only within a three-year statute-of-limitation window. The PRIDE Act was reintroduced to the House on June 11, 2021, and is currently with the Senate; if passed and signed, it could result in over $60 million in tax refunds for legally married same-sex couples. It also corrects gender issues within the tax code by providing gender-neutral language, which would serve to reverse previous inequities faced by same-sex married couples and other modern families.
- New NY Surrogacy Laws. The Child-Parent Security Act (“CPSA”) was signed in 2020 and has made significant changes to laws regarding gestational surrogacy in New York, now allowing compensated surrogacy. The CPSA took effect on February 15, 2021, and provides a path to establish parental rights for those who rely on assisted reproductive technology. The act creates a surrogate “Bill of Rights” to ensure the parties are able to make the healthcare decisions they feel are in their best interest and allows for a streamlined process to determine parentage and amend birth certificates. Regarding compensation to surrogates or donors, FCA § 581-502 of the Family Court Act, which followed the CPSA, states, “Compensation may be paid to a donor or person acting as surrogate based on medical risks, physical discomfort, inconvenience, and responsibility they are taking in the assisted reproduction.” Compensation must also be reasonable and negotiated in good faith, and the donor is limited to storage fees, attorneys’ fees, and transportation costs.
- To Marry or Not to Marry? Both scenarios come with pros and cons, and ultimately depend on one’s unique set of facts and circumstances. For example, it might be more advantageous for a couple to remain unmarried, in order to avoid the higher overall tax bracket that can result from combined household income (“marriage penalty”); whereas for another couple, marriage may result in a lower tax bill. There are several income tax advantages and disadvantages for unmarried couples to carefully review before making the decision to get married. However, the decision to marry is multi-factored, and tax savings should not be a main determinant in making this life decision. Prenups and Cohabitation Agreements Whether married or unmarried, a couple sharing assets and/or combining households is well-advised to protect the interests of both parties with a prenuptial or cohabitation agreement, as the circumstances dictate. A Tenant in Common agreement is also advisable for unmarried couples who purchase a residence together. These legal agreements protect the partners’ assets and can protect both parties in the event of a breakup, divorce, or death. The time to discuss these matters and lay out a thoughtful plan is at the outset, when the relationship is positive and the parties are of a like mind, and not later, after the relationship has turned acrimonious or one partner may have deceased.
- Estate Planning. In today’s legal climate, there are several questions modern families should be asking themselves, as they pertain to estate planning: Have you reviewed your beneficiary designations? Is your will up-to-date? Have you named guardians for your minor children? Who is your healthcare proxy and power of attorney agent in the event you are incapacitated and unable to make your own decisions? Does your living will make clear your intentions in the event of medical incapacitation? Estate planning is critical for everyone, but even more so for the Modern Family.
Whether heterosexual or LGBTQ, married or unmarried, with or without children, now more than ever, modern families need to rely on experts and specialists experienced in navigating the complex, hyper-local and shifting tax landscape for the modern family in America. Please consult with your local Marcum advisor.