Advisers Bolster Same-Sex Estate, Tax Planning

Arden Dale for the Wall St. Journal writes:  It's becoming a busy time for financial advisers with same-sex clients.  As more states recognize gay marriage and the U.S. Supreme Court gets ready to weigh in next month in a case that involves the federal tax rules for gay spouses, many same-sex couples want to change their tax and estate plans to keep pace.   For many advisers, a starting point is to review insurance policies and trusts in client estate plans. Some are even amending federal income, gift and estate tax returns for certain clients. 

"It's all a bit confusing now for same-sex couples," said Joshua T. Hatfield Charles, a financial planner in Rockville, Md., who manages around $125 million and speaks on behalf of the Certified Financial Planner Board of Standards on  same-sex issues. 

Many same-sex couples have lived together for some time and have long shared property and other assets, even if not in a legally recognized way. Their financial affairs can be more tangled than those of heterosexual couples who haven't had to wait to marry.
But as legalized gay marriage becomes more common across the U.S., it's crucial for gay couples and their advisers to start making tax and estate plans--or changes to existing plans to reflect the new laws, advisers say. 

Often, a place to start is a will that specifically names the spouse as heir of a property or other assets. Without that, property may pass to family members against the wishes of the owner, rather than a surviving spouse. 

This month, Delaware, Minnesota and Rhode Island all recognized gay marriage, bringing to 12 the number of states that now allow same-sex unions. 

And the high court is expected to decide in June on United States v. Windsor--which involves a suit by Edie Windsor, a gay woman who owes $363,000 in federal taxes on the estate of a woman she lived with for 44 years. It challenges the 1996 Defense of Marriage Act, or DOMA, which, among other things, denies same-sex couples federal tax breaks available to heterosexual couples. 

Recently, Mr. Charles advised a pair in Maryland--which recognized gay marriage in early 2013--they might get better access to tax and medical benefits by tying the knot now instead of waiting for the outcome of the Windsor case. The pair, for example, might be able to better protect their assets through joint titling which is now available only to married couples.
Jennifer Hatch, an adviser in New York, also encourages gay couples to move forward and start making marriage plans in states that have recently allowed same-sex unions.
"Get married, and don't move to a state that doesn't recognize your relationship until we have full marriage equality," said Ms. Hatch, managing partner of Christopher Street Financial, an advisory firm that manages about $275 million. 

Ms. Hatch is reviewing any life insurance policies her clients hold for estate tax purposes. Life insurance is commonly used to pay for estate taxes, both federal and state. But gay couples in states that recently recognized gay marriage may no longer need such policies if the state allows an estate to exempt both spouses from the estate tax. 

Some gay advocates, including Emily Hecht-McGowan, director of public policy at the Family Equality Council in Washington, D.C., expect the Supreme Court to side with Ms. Windsor and declare DOMA unconstitutional. 

Indeed, some tax advisers are making contingency plans in case that happens. New York attorney Ken Weissenberg has filed what he calls "protective" amended returns for a number of clients. These claim federal tax refunds going back several years if the court declares DOMA unconstitutional. 

On the other hand, for example, some gay couples who have not yet filed joint tax returns for 2012 don't need to rush, he said. 

"They should wait and see what the court says," said Mr. Weissenberg, a partner in the New York office of EisnerAmper, an accounting and financial advisory firm.