Same-sex couples can now take advantage of state and federal tax benefits.
The Pew Research Center reports that over 70,000 same-sex couples have legally married following the repeal of key provisions of the federal Defense of Marriage Act (DOMA) in 2013. Since that time, several states – Illinois among them – have legalized the marriage of gay and lesbian couples.
With the overturn of Section Three of DOMA, same-sex couples across the country can take advantage of a slew of new federal rights and privileges. Of these, some of the most economically valuable deal with federal estate and gift taxes. Changes also came to an oft-overlooked, yet vitally important, part of a well-balanced, comprehensive estate plan: life insurance.
The history of life insurance for gay and lesbian couples
With only a handful of states recognizing gay marriage prior to the DOMA decision, many same-sex couples had only low-cost, term life insurance policies on themselves. Now that those same couples can marry in 19 different jurisdictions and the federal government gives them the same estate and gift tax breaks enjoyed by heterosexual spouses, the insurance marketplace has greatly expanded. High-value policies and those with lifetime cash-in options are more popular now, as are “second-to-die” policies that defer costs for those inheriting following the death of both partners.
The availability of such policies, and the ease with which they transfer money has made the process of estate planning simpler for many same-sex couples. It is now possible to avoid life insurance trusts and other complicated legal vehicles previously used to protect beneficiaries from tax debt. In addition to changes in life insurance strategies, post-DOMA updates to state and federal laws have made it possible for same-sex spouses to make strides toward equal treatment for the following:
- Tax refunds
- Gift tax avoidance
- Estate tax exemptions
- Health insurance costs (particularly the deductibility of premiums and related expenses)
- Retirement benefits
Although there have been many positive changes in the area of gay and lesbian marriage in recent years, the fact remains that same-sex couples are still working toward full equality under the law. Times are changing, and there is hope that full equality is possible. That being said, many key differences remain, any of which could easily derail the taxation and estate planning strategies of even the most conscientious spouses. If you have questions or need more information about financial options for your estate plan, visit a qualified Illinois estate planning attorney in your area.
Keywords: same-sex marriage, estate planning, estate tax, gift tax