WHEN THE SUPREME COURT ANNOUNCED its historic ruling legalizing same-sex marriage nationwide, supporters rallied and buildings—including the White House and the Empire State Building—lit up in all the colors of the rainbow flag. Now that the celebrations have died down, same-sex couples are wondering: "What does it really mean for our financial lives?"
The implications of the ruling are far-reaching, but in some cases unclear. For answers to key questions regarding its likely impact, we turned to Gregory B. Cerbone, chief fiduciary officer, U.S. Trust, who has closely followed the same-sex marriage issue as it made its way through the courts, and Merrill Lynch Financial Advisor Bill Moran, who specializes in working with LGBT couples. Their answers reflect the start of a recalibration of the financial lives of same-sex married couples nationwide.
Merrill Lynch: Let's start with the basics. What exactly did the Supreme Court decide, and how has it changed the status quo?
Gregory Cerbone: Sure. Simply put, the decision eliminated prohibitions against same-sex marriage in the states and U.S. territories that did not already recognize these unions. Same-sex couples can now be legally married in any state or territory of the country, including the District of Columbia, and a same-sex marriage performed in any state or territory must be recognized in all other states and territories. The situation is a bit more complicated for the U.S. Territory of American Samoa, where its 55,000 residents are U.S. nationals rather than U.S. citizens.
"The ruling will simplify the way married LGBT couples handle their taxes, purchase their homes, plan for retirement and give their money to charities or loved ones." — Bill Moran, Merrill Lynch Financial Advisor
Bill Moran: From a practical financial perspective, what this means is that married same-sex couples everywhere will now have access to the same rights and advantages as married opposite-sex couples. The ruling will simplify the way married LGBT couples handle their taxes, purchase their homes, plan for retirement, and give their money to charities or loved ones.
Those who decide not to marry will basically be in the same position as opposite-sex couples who choose to live together—relying on a range of patchwork strategies to manage their finances as a couple.
ML: Can we look more closely at what the ruling means financially? Will legally married same-sex couples now be able to file joint tax returns, for instance?
GC: Yes. In fact, married same-sex couples now must file joint returns (married filing jointly or married filing separately) at both the federal and state levels. Before this decision, same-sex couples living in states where their unions weren't recognized typically had to prepare two sets of returns: a joint one for the federal government and individual ones for their state. That's no longer the case.
On the 1st anniversary of the Supreme Court ruling, financial advisor Bill Moran offered his take on how it has changed the lives of LGBT couples.Read More
BM: Something to be aware of is that married couples who file "married filing jointly" may find themselves in a higher tax bracket now. They could be hit with what's called the "marriage penalty." It's a good idea to discuss the implications with your accountant or tax professional before you file next year's returns.
ML: What else has changed in terms of financial planning?
BM: Basically, every financial advantage that applies to married opposite-sex couples now applies to married LGBT couples, including the marriage tax credit, education tax credits and the ability to take advantage of spousal IRAs. Where once the homes that LGBT couples owned were typically held in just one partner's name to avoid gift taxes, now property can be jointly owned without triggering the federal gift tax. Private pension plans in every state must now recognize the rights of same-sex spouses—even in the event of divorce or death. The ruling has huge implications for the financial security of married LGBT couples.
ML: How does the ruling affect benefits for veterans and retirees?
GC: Married LGBT couples everywhere are now eligible for Social Security retirement and death benefits, as well as veteran's benefits and all benefits under the Family and Medical Leave Act (FMLA). Agencies responsible for administering these programs are or will be in the near future issuing additional guidance to same-sex married couples.
ML: Does it simplify how same-sex couples handle their estate planning?
BM: Definitely. Individuals in same-sex marriages will now be able to inherit property from a spouse without paying any estate or inheritance taxes upon the death of the first spouse; this applies even to those states that impose their own estate and/or inheritance tax(es) and which did not previously recognize same-sex marriage. They also have the right in all states to administer a spouse's estate and to bring wrongful-death actions. Wills and beneficiary designations are still important, but if they aren't in place, all the rights and protections that apply to an opposite-sex spouse will now apply to a same-sex spouse.
Estate planning, as a result, can be more streamlined. Prior to the ruling many couples created trusts to ensure that their partners would receive an intended inheritance. Of course, there are other advantages to trusts, even for same-sex couples, and it's worth a check-in with your financial advisor to discuss them.
ML: Prior to this ruling, one of the most troubling aspects of LGBT discrimination was what happened when a spouse became hospitalized. Will that change?
GC: Yes. Married LGBT couples should now be given the same treatment as opposite-sex couples by hospitals and doctors. That includes the all-important right to visit a sick spouse and to make medical decisions, if necessary.
BM: Those rights also extend to insurance. In most cases, employers who offer spousal health insurance will be required to offer coverage to spouses in same-sex marriages.
ML: LGBT couples have also faced many hurdles when trying to adopt children. Will their rights in this area improve?
GC: They should, although how that plays out in practice remains to be seen. In his dissenting opinion, Chief Justice John Roberts wondered whether the majority's ruling will conflict with the rights of adoption agencies operated by religious institutions that choose not to place children with same-sex couples. Roberts speculated that this question is bound to be the basis of further litigation.
ML: The decision reflects majority opinion in this country. But there are pockets of resistance. Is it possible that the rights granted by the decision will be contested or denied?
BM: Already there's talk of a movement to pass an amendment to the U.S. Constitution that would define marriage as a partnership between a man and a woman, but getting a constitutional amendment passed would take years.
The more immediate possibility is that legislators in states where LGBT rights are especially unpopular could seek legislative "fixes" designed to circumvent the ruling. For these reasons, it's still a good idea for same-sex couples who are legally married to carry proof of their marriage with them when they travel. You can't be sure that your rights will automatically be recognized wherever you go.
GC: Bill makes a key point there. In fact, it's important to recognize that this decision does nothing to counteract various other forms of discrimination against LGBT individuals. For example, in states that don't have a comprehensive anti-discrimination law that includes sexual orientation, same-sex couples who are married on Saturday can still be fired from their jobs on Monday. There is still a lot of work to be done.
3 Questions To Ask Your Advisor
- What do we need to know about beneficiary designations as we plan our marriage?
- Should we consider shifting our investment strategy to prepare for the possibility of a higher joint tax bracket?
- I'd like to transfer ownership of my home jointly into my own and my spouse's name. How do I go about it?