The Defense of Marriage Act and Estate Planning

August 3, 2012

Same sex partners face estate planning challenges that opposite-sex partners do not face. The obstacles that create these challenges, however, make estate planning even more important for same sex partners than for couples in a traditional marriage.
The Defense of Marriage Act, or DOMA, must be considered whenever a same sex couple sits down to work on an estate plan. DOMA impacts a same sex couples’ estate plan in two very significant ways. First, it gave states the legal ability to refuse to recognize a same sex marriage even if it was legally performed in another state. Second, it established that the federal government does not recognize any same-sex marriages, civil unions, or other relationship designations.
Because the federal, and most state, governments do not recognize same sex marriages, the partners must plan accordingly. A surviving spouse, for example, can roll over an IRA without incurring taxes and delay distributions. A same sex partner does not get this favorable tax treatment.
Purchasing life insurance may not be a viable option for same sex partners. Many states require the purchaser to have an “insurable interest” in order to be able to purchase a life insurance policy. Often, a same sex marriage, civil union, or other type of partnership does not count as an “insurable interest”.
Care must be taken to avoid over-gifting. Opposite sex partners can take advantage of the unlimited marital deductions for gift tax purposes, but same sex couples do not have this option. Over-gifting could result in a hefty gift tax bill.

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