Tax & Estate Strategies Update for Married LGBTQ+ Couples
by Brandon Miller on Sep 9, 2020
The 2015 Obergefell v. Hodges Supreme Court decision streamlined tax and estate strategizing for married LGBTQ+ couples. If you are filing a joint tax return for this year or thinking about updating your estate strategy, here are some important things to remember.
Keep in mind that this article is for informational purposes only and not a replacement for real-life advice. Also, tax rules are constantly changing, so please contact a tax or legal professional before amending or adjusting any tax preparation materials.
You can file jointly if you were married at any time this year. If you married on January 1, June 8, or December 31, it doesn’t matter; you can still file jointly as a married couple. Under federal tax law, your marital status on the final day of a year determines your filing status. This rule also applies to divorcing couples. Now that marriage equality is nationally recognized, filing your state taxes is also now much easier.1,2
If you are newly married or have not considered filing jointly, the fact is that most married couples can potentially benefit from doing so. If you have or want to have children, you will need to file jointly to qualify for the Child and Dependent Care Tax Credit. Filing jointly also makes you eligible for Lifetime Learning Credits and the American Opportunity Tax Credit.3
You can gift greater amounts to family & friends. Prior to the landmark 2015 SCOTUS ruling, LGBTQ+ spouses were stuck with the individual gift tax exclusion under federal estate tax law. An LGBTQ+ couple could not pair their $15,000-per-person allowances to make a gift of up to $30,000 as a couple to another individual, as married straight couples could. Now, LGBTQ+ spouses can gift up to $30,000 to as many individuals as they wish, per year.4
You can take advantage of portability. Your $11.58 million individual lifetime estate and gift tax exclusion may be adjusted upward for inflation in future years, but it will also be portable. Straight couples have had this estate tax break since it was introduced several years ago. Under the portability rules, when one spouse dies without fully using the lifetime estate and gift tax exclusion, the unused portion is conveyed to the estate of the surviving spouse. So, doing the math, if a spouse dies in having used only $2.1 million of the $11.58 million lifetime exclusion, the surviving spouse, thereby, ends up with a $9.48 million lifetime exclusion.5
The unlimited marital deduction is also now available to LGBTQ+ couples. This is the basic deduction that allows one spouse to pass assets at death to a surviving spouse without any effects of federal estate tax.1
Remember to check on state tax laws. In which state do you reside? Investigate the tax laws in that state with the help of a tax or financial professional.
Marriage equality has made things so much simpler. The hassle and extra paperwork that some LGBTQ+ couples had to face at tax time is now, happily, a thing of the past.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
Citations:
1. Fidelity.com, June 26, 2020
2. Internal Revenue Service, January 10, 2020
3. ThinkAdvisor.com, June 17, 2020
4. IRS.gov, August 6, 2020
5. IRS.gov, July 5, 2020