People in California may have heard about a recent tax policy change that could provide some peace of mind for same-sex couples across the state. Same-sex marriage has been a hot-button topic here in California and in many other states, and shifting laws and regulations have made tax and estate planning a veritable nightmare for same-sex couples who have faced tremendous uncertainty in their own financial futures.
The federal government has finally released some guidance for same-sex couples, who under new laws will be treated as married for federal taxation purposes regardless of their state of residence. This is great news for same-sex couples in states where same-sex marriage isn’t legally recognized, as they will now be eligible for the same favorable tax status as other married couples. In addition to being eligible to file as married in future years, same-sex couples can also file for a refund for previous years when they filed as individuals. This new ruling will likely help most middle and low-income married couples, but may actually increase the tax burden for some high income earners in same-sex marriages.
In addition to filing as married, same-sex spouses can also take advantage of bypass trusts to freely transfer wealth between each other upon death without unnecessary taxation. This could be a major financial incentive for many married couples in California.
The new federal rules are a great start, but same-sex couples, as well as other married couples, should always stay on top of their estate planning. As state and federal rules change, people need to make sure they are in the best position to avoid unnecessary taxation and get the most asset protection they can.
Source: Investment News, “Tax rule changes require re-planning,” Liz Skinner, Sept. 1, 2013