In a 5-4 decision, the U.S. Supreme Court ruled that the principles of due process and equal protection of the U.S. Constitution’s 14th Amendment require all states to recognize the legal validity of same-sex marriage. As a result, all states must immediately allow same-sex couples to marry. In addition, all states must recognize the validity of same-sex marriages performed in other states (Obergefell v. Hodges, 135 S.Ct. 1039 – June 26, 2015).
The decision has far reaching implications for life insurance and financial service professionals. Here is a list of the potential benefits and consequences of a state sanctioned legal marriage:
- Unlimited marital deduction for Federal estate tax planning
- Marital-Credit Shelter trust planning to utilize part or all of the estate tax exemption at the first death
- Portability planning to carry over any unused estate tax exemption from the estate of the first spouse to the surviving spouse
- Spousal retirement benefits and survivor benefits for Social Security
- Married filing joint status for federal income tax planning
- State spousal property rights during lifetime such as 50-50 community property rights in the ten states that recognize community property (AK, AZ, CA, ID, LA, NM, NV, TX, WA, WI)
- State spousal property rights in probate property where a decedent has no will (intestate) and the surviving spouse is entitled to at least their intestate share
- State spousal property rights in probate property to elect against a will for at least their intestate share.
- Split gift election ($14,000 / $28,000) for gift tax annual exclusions
- Split gift election ($5,430,000 / $10,860,000) for lifetime gift exemptions
- ERISA protection as a spouse under an employer provided qualified retirement plan (i.e. defined benefit, 401(k), 403(b), 457(b), profit sharing, etc.)
- Spousal rights under employer sponsored medical insurance plans
- Spousal rights under employer sponsored long term care benefit plans
- Surviving spouse rollover rights for IRAs and Roth IRAs at the death of the first spouse
- Surviving spouse non-qualified annuity continuation rights at the death of the first spouse
- Upon divorce, the right to negotiate a Qualified Domestic Relations Order (QDRO) for a tax free transfer of employer provided qualified retirement plans
- Upon divorce, the right to negotiate a Transfer Incident to Divorce for a tax free transfer of an IRA from one spouse to the other
- Upon divorce, the right to negotiate a tax free transfer of a non-qualified annuity from one spouse to the other
Life insurance carriers may need to adjust their financial underwriting and insurable interest guidelines to treat same-sex marriages similar to the standards and guidelines used for traditional marriages.
In summary, for financial planning, same-sex marriages should be treated the same as traditional marriages for any financial, estate, retirement, tax, or employer benefit plan related purpose.
Russell E. Towers JD, CLU, ChFC
Vice President – Business & Estate Planning
Brokers’ Service Marketing Group