6 Facets of Estate Planning that LGBTQ+ Couples Should Know

Estate planning is an important consideration for all couples. However, for LGBTQ+ couples (or former couples), it may be more important than they realize to review their circumstances and see whether they have an estate plan that accurately reflects their wishes.

In 2015, the U.S. Supreme Court ruled that same-sex couples may exercise the fundamental right to marry in all states and have their marriage recognized by other states. This case also invalidated state laws that excluded same-sex couples from civil marriage on the same terms and conditions as opposite-sex couples.

Before this ruling, LGBTQ+ couples could provide for their partner through wills or insurance policies, but often not to the extent they would have been able to if their partner was a legal spouse. This is because many state and federal laws give preference to biological relatives and descendants over an unmarried partner or significant other.

After this ruling, many estate planning options that were not previously available to LGBTQ+ couples have become a possibility well worth exploring.

Tax Benefits: Marital Exemption and Portability

One of the benefits of being legally married is that under U.S. Federal Estate and Gift Tax laws, a person may transfer an unrestricted amount of assets to their spouse at any time, including at their death, tax-free (assuming they are a U.S. citizen).

This estate preservation tool was unavailable to LGBTQ+ couples until same-sex marriage became legal. As a result, each partner had to use up their own lifetime federal gift and estate tax exemptions before they could transfer assets to their significant other.

These exemptions still apply if a couple is not married and may be a good reason to formalize a partnership through marriage. In 2023, if an unmarried couple wishes to gift one another assets, they would be limited to:

• An annual gifting limit of $17,000 per recipient; and
• The lifetime federal gift tax exclusion for U.S. citizens of $12.92 million per recipient.

However, upon the marriage of two individuals, any assets left to a U.S. citizen spouse is entitled to the unlimited marital deduction.

Another tax benefit of being legally married is that the surviving U.S. citizen LGBTQ+ spouse may also elect portability of their deceased spouse’s unused federal estate and gift exclusion amount for their benefit. This can be a critical tax-saving device where the surviving spouse has an estate value that exceeds the federal exclusion amount.

Social Security Benefits

LGBTQ+ couples may also wish to consider getting married to reap potential Social Security benefits. The Social Security Administration (SSA) now recognizes all marriages in all states, as well as some civil unions and domestic partnerships. As a result, the SSA will use this to determine whether a person is entitled to Social Security benefits, Medicare, survivor benefits, and more.

A person or their spouse may be entitled to benefits or a higher benefit amount based on their marital relationship. In addition, their children or stepchildren could also be entitled to benefits based on their relationship with you or your spouse.

Married LGBTQ+ partners may also now qualify for Social Security survivor benefits. For example, if you were married to a person who passed away, your marriage may qualify you for Social Security survivor benefits based on your partner’s work record. This is also true even if you could have been married at the time of your partner’s death if state laws hadn’t prevented you from doing so, or you would have been married longer if not for unconstitutional state laws that prevented you from marrying earlier.

Rolling Over Retirement Assets

Before the 2015 Supreme Court ruling, LGBTQ+ couples could not roll over assets from their retirement accounts to a surviving partner’s account. However, now all married couples have this ability.

A spouse beneficiary may roll over or transfer an inherited IRA from their deceased spouse into their own IRA for their benefit and use. However, nonspouse beneficiaries do not have this option. This may be another estate planning benefit that makes marriage a good choice.

Gift Splitting

Married LGBTQ+ spouses, like heterosexual couples, can take advantage of “gift splitting” to reduce the size of their taxable estate. What this means is that one spouse, with the consent of their spouse, can gift the annual gifting tax exemption amount ($17,000 x 2 in 2023) from their assets to a recipient and treat it as if each spouse contributed half the amount.

Allowing the combination of individual allowances permits many couples to use the gift tax exclusion in a way that works best for them. However, before you do so, it is best to consult with a tax professional to ensure gift splitting makes sense for you.

Children of LGBTQ+ Relationships

Many LGBTQ+ couples will be concerned about providing for their children upon their passing or cementing their parental rights over those of biological relatives especially where only one parent is a biological parent. In these instances, if the nonbiological parent formally adopts the children, then all of the traditional estate planning options open up and are available to them when planning to provide for children after death. In addition, concerns about who would be a child’s legal guardian should be resolved before legal issues arise.

If a couple is not married and considering marriage, there may be tax advantages to planning the adoption before the marriage. This tax benefit is referred to as the adoption tax credit. An LGBTQ+ couple considering this should consult with a tax professional before making any decisions.

Untangling Prior Relationships

A less frequently discussed issue that many LGBTQ+ individuals may face is the impact of their prior civil unions, domestic partnerships, or other relationships on their future estate plan. This is especially true for couples who are no longer together.

For example, a couple who moved to a state that first recognized same-sex domestic partnerships or unions but is no longer together may not realize that their prior partner could have a claim against their future estate. Some states that allowed the earliest unions ultimately upgraded these nonmarital unions to marriages after laws changed.

As a result, people who are no longer together may be legally married and not realize this. These unions would need to be undone in order to engage in proper estate planning that carries out your wishes.

You may have realized from reading this article that estate planning can be more complex for LGBTQ+ persons. Obtaining the counsel and advice of a qualified attorney can make a world of difference. Please feel free to reach out to Sowards Law Firm with any questions or concerns at (408) 371-6000 or info@SowardsLawFirm.com.