Planning for Same Sex Couples After 2010 Tax Act

Planning for Same Sex Couples After 2010 Tax Act

By by Martin M. Shenkman, CPA, MBA, JD

Same Sex Couple Planning Same sex couples will face a less onerous tax burden post-TRA. This is not because the negative tax stance toward same sex couples has changed; the Defense of Marriage Act (DOMA) remains law. But the higher exclusion and lower tax rates will effectively permit more same sex couples to shift wealth between partners at less cost.  For many, the $5 million estate tax exclusion may solve their entire estate tax problem. Under prior law as well as the 2010 TRA, same sex married couples could not benefit from the federal gift or estate tax marital deduction. To worsen the discriminatory treatment of same sex couples, a corner stone of the 2010 TRA, the addition of the new and beneficial concept of portability, will not be available to same sex couples. This will result in these couples using bypass trust planning rather than relying on portability. This, as discussed above, might prove beneficial in many, but not all scenarios. The practical problem with implementing this bypass trust planning is dividing assets so that whichever partner dies first has adequate assets to fund the bypass trust. This too will require advance planning. Perhaps for some using discounts, the large gift tax exclusion, and other planning will provide an opportunity to shift wealth to irrevocable trusts for the less wealthy partner. Since the increased exclusion is only scheduled to be law for two years, wealthy same sex couples, especially those with a significant skewing of wealth in the hands of one partner, should plan aggressively while that window of gift opportunity exists.

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