Part I: How US v. Windsor Affects LGBT Clients – An Overview

On June 26, 2013, the U.S. Supreme Court found that the Defense of Marriage Act was unconstitutional. With that single ruling, many doors opened for LGBT Americans across the country. Under the Supreme Court’s finding, the federal government can no longer discriminate against married lesbian and gay couples when determining federal benefits and protections.

A brief history of Windsor v. United States

When Thea Spyer died in 2009, she left her estate to her partner of four decades and wife of two years, Edie Windsor. However, because federal tax law did not recognize their marriage under the Defense of Marriage Act, that inheritance was hit with an estate tax that would not apply if the couple were legally married. What followed were years of court cases in an effort to challenge the constitutionality of DOMA. In June 2013, DOMA was struck down.

What does that mean for LGBT Americans?

The fall of DOMA presents new challenges and opportunities for same-sex couples.Though it’s been a year since the Supreme Court found DOMA unconstitutional, the full impacts of the decision remain to be seen. Questions are raised, in particular, for same-sex couples who were married in states where their union was legally recognized and then moved to a state where it wasn’t. Regardless of their current marital situation or state in which they reside, LGBT individuals have a lot to consider when it comes to their finances. Though some regulatory bodies – the Department of Labor, the IRS and the Department of the Treasury, for example – have already provided some clarification, more rules and clarifications can be expected to come down the pipeline in the coming months and years.

For now, however, here are some factors all married LGBT couples need to consider, as outlined in a whitepaper from Prudential:

Workplace benefits

To start, same-sex married couples should look into the benefits they each receive from their respective places of work to find out how they can benefit from the Windsor ruling.

  • Retirement plans: One essential part of estate planning involves setting aside money for retirement. Depending on the individuals’ professions, they may have a 401(k) or a pension plan. Regardless of which plan they have, they need to review their beneficiary designation to be sure it reflects their current intentions. If they name someone aside from their spouse as their beneficiary, their spouse needs to provide written consent.
  • Survivor benefits: In defined benefit plans, same-sex spouses can now take advantage of survivor benefit protection in an immediate annuity payable to the surviving spouse. This must be made available no later than the month the deceased participant would have attained the earliest retirement age under the qualified preretirement survivor annuity plan.
  • Miscellaneous benefits: Depending on their place of employment, there is plenty to look into to ensure same-sex couples are reaping all possible benefits. For example, some companies offer retirement planning services, employee discounts, access to athletic facilities and other fringe benefits that the spouse may also be able to take advantage of.

Financial planning

The fact that the Windsor case started with a financial planning issue should be an indication of how important this factor is for same-sex couples newly recognized under federal law. Here are some considerations to be made:

  • Individual health care and Medicare: For couples who do not have health care provided through their employers, their eligibility for premium tax credits and subsidies can be based on their combined income. Similarly, if one spouse does not qualify for coverage because of a failure to obtain 40 quarters of work, the other spouse can contribute the remaining quarters.
  • Social Security: Depending on the state of residence of the married couples, their approach to filing for Social Security will vary. If they live in a state that recognizes same-sex marriage, they should file for spousal or survivor benefits through the Social Security Administration. As with any married couple, they should always look for ways to get the most out of the benefits. Unlike heterosexual couples, however, there are still many states where same-sex marriages are not legally recognized. If a couple resides in a state where same-sex marriage has not yet been legalized, couples should consider filing for benefits anyway, as they may receive them retroactively should same-sex marriage become legal in that state down the road.
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