To marry, or not to marry? While the obvious answer can usually be found in one’s heart, many couples also look to the pros and cons of marriage- in terms of things like healthcare benefits, retirement benefits and tax implications. Until recently, however, many of these benefits to marriage did not apply to same-sex couples in New Jersey- even though several states (currently 19) already recognized their marriage as valid.
In July, 2013, the United States Supreme Court issued a decision that required the IRS to recognize same-sex marriages that are valid under state law. This decision meant that same-sex marriages would now be treated just like any other marriage for the purpose of federal law (and now both New Jersey and Pennsylvania law, among other states). Therefore, same-sex couples now have more benefits to consider when deciding whether or not to marry.
In terms of federal gift and estate taxes, same-sex couples can now transfer an unlimited amount of assets (either during life or at death) to a spouse, a benefit that opposite-sex couples have enjoyed for decades. And the tax benefits do not end on the death of the first spouse; the estate of the second-to-die spouse can take advantage of certain tax benefits that may not have been fully utilized by the first-to-die spouse. It is important to note that only legally married couples can take advantage of these federal tax benefits – domestic partnerships and civil unions are not sufficient to qualify for these federal gift and estate tax benefits.
Similar to the federal estate tax laws, New Jersey allows a married individual to transfer an unlimited amount of assets to his/her spouse during life or at death. In New Jersey, this benefit applies to both legally married couples and civil union partners, but not domestic partners. New Jersey law also imposes an inheritance tax on certain transfers made upon death. As long as a couple has entered into either a valid marriage, civil union, or domestic partnership, New Jersey inheritance tax will not be assessed on transfers to the surviving spouse/partner. However, for couples choosing not to enter into any form of legal union, New Jersey inheritance tax will be levied at the highest rate for post-death gifts to the survivor.
Okay, so maybe same-sex couples do not exactly “cash in” at death, but there are now significant tax savings available to such couples that were previously available to opposite-sex couples only. Despite these long-awaited advancements, many same-sex couples remain in civil unions or domestic partnerships, or have not yet entered into any form of legal union. If you are a same-sex couple, or even an opposite-sex couple, who has recently married or is deciding whether or not to marry, it is important to consult an estate planning attorney who can help you explore the opportunities available to minimize taxes.