Estate planning for same sex couples
August 7, 2008
On May 15 the California Supreme Court decided, in a case called In re Marriage Cases, I that two state laws that had limited marriages to opposite-sex partners are unconstitutional and held that single-sex couples have a constitutional right to marry. This decision, if it is not undone by Proposition 8, which is a proposed amendment stating, “Only marriage between a man and a woman is valid or recognized in California,” will give California same-sex married couples all of the rights and obligations of heterosexual married couples. It is important, though, for same-sex couples to remember, however, that this Supreme Court case will not change in the estate-planning arena for same-sex couples.
The reasons for this are mainly two: First, California already has on the books a whole collection of Registered Domestic Partnership laws. Since 2005, same-sex couples and for that matter, opposite sex couples wherein at least one partner is over the age of 62, have already had the ability to become Registered Domestic Partners in California and be treated as spouses for all purposes under California law. Among the rights that a same-sex couple can now obtain by either marrying or becoming Registered Domestic Partners are the rights to acquire community property, avoid a reassessment when an interest in California real property passes from one registered domestic partner to the other, receive spousal support on a termination of the marriage or registered domestic partnership, act as the health care agent for the other party if the other party has no Health Care Directive in place and receive property as an heir upon the death of the other party.
The second and perhaps more important reason that the Supreme Court case will not have the tremendous estate-planning effect that it could have, and which same-sex couples must remember when doing estate planning, is that the changes resulting from the case are only effective as to state law. One significant consideration in estate planning is taxes, and most of the taxes we are concerned about in estate planning are federal taxes. There are many advantages under federal tax law to being a married couple when it comes to estate and gift taxes. For example, spouses can make unlimited gifts and bequests (gifts on death) to each other without paying any transfer tax (estate or gift tax). These tax advantages are a result of federal laws, however, and do not apply to same-sex couples, even if they are legally married. Same-sex couples, whether married or not, are limited to $1 million in total lifetime gifts and $12,000 per donee annually. On death, only $2 million is exempt from estate tax. The surviving same-sex spouse may have to pay estate taxes, whereas a heterosexual married couple does not pay estate tax on any amounts left to each other.
There are advantages to marriage when it comes to capital gains tax, also. The IRS allows a step-up in basis on all community property upon the death of only one spouse. This can result in significant capital gains tax savings when a married couple owns greatly appreciated assets, such as a home purchased many years ago. For a same-sex married couple or registered domestic partners, the State of California may recognize their assets as community property, but the IRS will not, and it will allow a step-up in basis only on the deceased spouse’s share of any assets.
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Kirsten Howe practices estate planning law in Walnut Creek. Send your estate planning questions to Kirsten by e-mail.
Tags: same sex couples, family law, california politics blog, heterosexual, gay, estate plan, same sex marriage, estate planning, registered domestic partnerships, lesbian, california politics, domestic partnership
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