From Our “Ask a Question” mailbag: “Estate Planning for Same-Sex Couples in New Jersey.”

Most recently updated on June 6th, 2018.

Estate Planning Attorney, Tatyana Gleyzer.

“With the court’s decision in Windsor, what changes should I make to my estate plan? Any suggestions for Estate Planning for Same-Sex Couples in New Jersey?”

Estate Planning for Same-Sex Couples in New Jersey.

After the landmark U.S. Supreme Court decision in United States v. Windsor, which found unconstitutional the portion of the Defense of Marriage Act (“DOMA”) that defined “marriage” as a union between a man and woman.  Further, that “spouse” as only a person of the opposite sex. Followed by the decision in Garden State Equality v. Dow, where the New Jersey courts found that the New Jersey Constitution required same-sex marriage.  Now New Jersey residents can enter into same-sex marriages.  Furthermore, New Jersey will recognize same-sex marriages from other states.

Soon after Windsor, the IRS and U.S Department of Treasury released a ruling.  The ruling states that the federal government will treat same-sex married couples as married for federal tax purposes.

What Estate Planning Techniques to Examine.

With this equal treatment, various tax and estate planning techniques are now available to same-sex couples. These techniques could provide substantial tax savings and asset protection options. If you decide to enter into a New Jersey same-sex marriage consider taking the following steps:

Overhaul Your Current Estate Plan:

Now valuable estate planning options such as disclaim trusts, QDOTs, and tenants-by-the-entireties ownership are available. Married couples may make unlimited gifts to one another free of the federal gift tax. This option allows you to move assets tax-free for strategic asset protection purposes. Make a complete review of all your documents.  We can review your wills, powers of attorney, living wills, and IRA Trusts. A comprehensive analysis is to make sure your plan now reflects the best tax and asset protection options to fit your needs.

Reassess Life Insurance:

The New Jersey Inheritance Tax does not tax life insurance. So, many same-sex couples used life insurance to avoid the tax that would have applied to other assets pre-Garden State Equality. Post-Garden State Equality.  Now all assets pass to a same-sex spouse free of the New Jersey Inheritance Tax.  So the life insurance may no longer be needed. Further, because of Windsor, there is no federal estate tax on assets passing to a surviving spouse. Thus if life insurance was purchased to provide liquidity to a surviving partner to pay the federal estate tax, that insurance might no longer be needed. Life insurance offers a useful estate planning and asset protection tool. It may be time to reassess that tool’s usefulness in your given situation.

Plan Around Portability:

The federal estate tax Applicable Credit is the amount of your estate that the federal government allows you to give at your death without paying the 40% federal estate tax. Transfers to spouses are free of the estate tax.  But without planning when one spouse dies, and the other takes everything, you could lose the first spouse’s exemption. With proper planning, a married couple can “team up” and use both exemptions. This ability of one spouse to take and hold the first spouse’s applicable credit amount in the future is known as portability. If you have a taxable estate, a proper estate plan will provide you with substantial savings.

Maximize The Annual Exclusion Credit:

There are several types of gifts that you can make free of the federal gift tax. One exception is the annual exclusion, currently $15,000 in 2018. The exclusion is “annual,” as you can make a new gift each calendar year of $15,000. The gift can be to anyone, and you can make as many $15,000 gifts as you wish. With the Windsor decision, same-sex couples can now “gift split.” Which means that one spouse can permanently borrow the other spouse’s annual exclusion amount.  This sharing doubles the gift.

For example, if one spouse has a child and grandchildren from a previous relationship, and that spouse wants to make an annual gift to these descendants.  Before Windsor, the rules limited gifts to one to the child and each grandchild. Post-Windsor, the spouse can utilize gift splitting. Thus, use the other spouse’s ability to make an annual gift to the child and grandchildren. The first spouse can double the check to the child and grandchildren from that spouse’s funds free of the federal gift tax.

Gift Tax and GST Gift Splitting:
Beyond the annual exclusion mentioned in the previous paragraph, same-sex couples can also gift-split their applicable exclusion amount. They can also do generation-skipping tax planning. This allows substantial tax savings and asset protection planning. Especially when one spouse has substantially more wealth than the other spouse.

Assess Options for Retirement Plan Beneficiary Designations:

If your retirement plan is covered by ERISA, your spouse is automatically the beneficiary. Your spouse may allow you to name another person as beneficiary, but written consent is needed. For same-sex couples contemplating marriage who have children from other relationships, this issue is something that a prenuptial agreement should address. After the wedding, the new spouse will be the beneficiary. This is true even if the beneficiary designation names the children. Qualified plans often make up a significant portion of a person’s estate. The options for inheriting a retirement plan differ if the beneficiary is spouse rather than a non-spouse. A thorough review of the opportunities given your specific situation would be wise.

More Planning Questions?

If you have more estate planning questions, please read my more detailed article, Estate Planning, Everything You Need to Know.

In Conclusion: Who Needs an Estate Plan.

In this article, I tried to address Estate Planning for Same-Sex Couples Jersey. Further, I included links to even more detailed information on my website. So, let me know how I did, comments and questions are welcome! I hope it helped! 

If you have more questions about wills and estate planning, let our Camden County Estate Planning Lawyers help walk you through the confusing process.  Our lawyers are ready to answer your questions. Feel free to contact our office for a free consultation. 

Wills, Trusts, Probate, and Estate Litigation, It’s All We Do!

Peter Klenk, Estate Planning Lawyer