It was only last December when Washington's same-sex couples were legally allowed to get married in the state, but estate planning and tax issues have changed for these couples quite a lot in the months since then. First, there was the Supreme Court's decision that struck down a key part of the Defense of Marriage Act, which meant that the federal government could no longer deny federal benefits to same-sex couples who were legally married. Next, just last month, the Internal Revenue Service outlined new rules that made it clear that married same-sex couples will be able to file their taxes just as heterosexual married couples have long been able to do, as either "married filing jointly" or "married filing separately."
These choices will often, though not always, give the couples the chance to save some money on their federal tax bill. It is possible that same-sex married couples will even be able to get a refund for tax years they were not allowed to take the deductions available to heterosexual married couples.
The other big tax advantage to come out of this year's developments pertains to the federal estate tax, or inheritance tax. Married individuals have the right to transfer money to a spouse without any tax consequences. That includes both transfers during life that might otherwise trigger a gift tax and transfers upon death that might otherwise trigger an estate tax. The Defense of Marriage Act denied that right to those with same-sex spouses. Now that the Supreme Court has gutted that Act, Washington's same-sex couples will be able to transfer funds or leave their estates to each other without incurring federal gift or estate taxes.
Of course, this change in the estate tax benefits only a small number of couples, the federal estate tax applies only to very wealthy couples. It currently kicks in only on estates larger than $5.25 million. The change in gift tax could benefit many others, however. Gift tax can kick in on transfers over $14,000. A Washington resident who wishes to put a same-sex spouse on the title to a house or car could easily run into gift tax problems were it not for the Supreme Court's decision.
There are many factors to consider when putting together an estate plan in Washington, but the process need not be overly stressful or expensive. Those who wish to leave their loved ones in a comfortable position, and to spare them some of the complexity of probate proceedings, should get help understanding how to set up an effective plan.
Source: The New York Times, "Gay and Married Couples in New Land of Taxation," Tara Siegel Bernard, Aug. 30, 2013