This article is a nice reminder that unmarried couples must actively plan for their estate plan. Additionally, it explores some of the less exciting tax aspects that the possible overturn of the Defense of Marriage Act (“DOMA”) may bring.
All unmarried couples, not just gay couples, need to actively plan and execute their estate plan. Any unmarried couple that wants their partner to receive their assets needs to take steps to create and execute an estate plan. This can be done with transfer on death accounts and affidavits, as well as through wills and trusts. Each state has probate laws that provide how assets are distributed without a will. If a proper estate plan isn’t executed, probate laws dictate beneficiaries, typically children, followed by parents, siblings, and nieces and nephews. If the probate laws are followed, the partner does not receive any assets. More importantly, the unmarried partner is unable to make both financial and health care decisions if lifetime powers of appointment aren’t executed. Executed estate plans are very important for all unmarried couples that want their partner to make decisions or inherit their assets.
From an income tax standpoint, the possible overturn of DOMA will allow same sex couples to experience the same marriage penalty or marriage bonus, depending on the tax situation as heterosexual married couples. The joint filing status can be a marriage bonus for taxpayers when a high wage earner marries a stay-at-home partner or low wage earner. Joint filing becomes a marriage penalty when both partners have higher income, and the joint filing status bumps the couple into a higher tax bracket. Additionally, married filing separately filing status negatively affects everything from deductions and credits to the ability to contribute to retirement plans.
The Supreme Court’s possible overturn of DOMA will give all couples the ability to choose whether income taxes should play in a role whether they get married. In addition to avoiding the so called marriage penalty, some couples choose not get to married due to one partner’s tax issues with the IRS. The possible overturn of DOMA will allow all couples the same opportunity, rather than just heterosexual couples.
All in all, this article serves as a nice reminder that all unmarried couples need to take an active role in estate planning and the possible overturn of DOMA will be far reaching, including things as mundane as taxes. We’ll continue to follow and comment on the implications of the Supreme Court’s decision on DOMA.