New York City Pride March 2013: Edith Windsor (Photo credit: FreeVerse Photography)

As explained in this recent article, one of the biggest estate benefits to come from the recognition of same-sex couples is the ability to transfer as much assets as they wish to each other, either during life or death, without having to pay any federal estate or gift tax. Prior to this 5-4 ruling from the Supreme Court, this tax benefit was unavailable for same-sex couples because section 3 of DOMA defined marriage as a “legal union between one man and one woman,” and spouse as “a person of the opposite sex who is a husband or a wife.” However, with the repeal of DOMA, same-sex married couples may finally be treated with equality and invoke this tax benefit as well as many others.

Another estate tax benefit that is now available to same-sex married couples is that of portability which was part of the 2010 tax law changes. This concept allows the surviving spouse to use the unused estate tax exclusion, which is currently $5.25 million, upon the passing of the spouse as their own. To utilize this benefit, the executor handling the estate of the deceased spouse need to elect on the estate tax return to “port” the unused exclusion to the surviving spouse, who may then use the remaining credits.

Another important estate planning benefit now available to same-sex couples is gift-splitting. Currently, individuals are allowed to give away $14,000 a year to as many people as they want without reporting the gift or paying a gift tax. There are three ways married couples can “gift split”: (1) each spouse may give $14,000; (2) the spouses may collectively give $28,000 from a joint account; or (3) a single spouse may combine the gift exemption and give $28,000 from his or her own account.

This new ruling also impacts company retirement plans, rollover rights for retirement accounts and other IRA accounts.  Same-sex married couples have access to the Employee Retirement Income Security Act of 1974, which gives your spouse the right to be the sole primary beneficiary to qualified retirement plans. Also, special rights are created for all retirement plans including IRAs that allow the spouse to rollover the account and defer taking withdrawals until the surviving spouse reaches the age of 70½, rather than immediately taking withdrawals by December 31^st of the same year.

Whenever a new law is enacted, it’s important to seek advice from an experienced estate planning attorney who stays on top of these changes to update your estate plan is up to date and correctly reflects both your intent as well as the changes in the law.

The post DOMA is Unconstitutional, Now What? appeared first on Desert Law Group | Kimberly T. Lee.

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The first pitfall occurs in gifting assets to a partner. Domestic partners often try to protect each other by combining their assets and holding them jointly. However, this action could have negative gift tax implications. Under the federal gift tax for 2013, a person can only give $14,000 annually, tax-free. A gift tax return would need to be filed to report any gift over the $14,000 amount.

The next pitfall is failing to authorize both partners to make medical and financial decisions for the other. Without any legal documentation, it is all too easy for the estranged family of one partner to keep the other out of his or her hospital room. Luckily, this occurrence can be averted through a comprehensive planning using financial and health care power of attorney.

Another pitfall is using a simple will in order to transfer assets to one’s domestic partner. Because of a will is more susceptibility to challenge, this type of planning can cause significant problems that lead to unintended outcomes. Domestic partners should utilize methods of asset transfer that are outside of probate such as trusts and beneficiary designations. Such transfers have the best possibility of being effectuated quickly and without challenge.

This is a changing area of the law and it is important for domestic partners, same sex or otherwise, to seek the professional help from an estate planning attorney who is experienced in this type of planning.

The post Pitfalls in Planning for Domestic Partners appeared first on Desert Law Group | Kimberly T. Lee.

Generally, it is better to let your child inherit homes that have appreciated in value since your original purchase. For homes that have not increased in value or have even decreased in value, it doesn’t matter whether you give the property to your children as a gift or allow them to inherit it.

To illustrate, if you give your home away as a gift, the recipient’s cost basis is the same basis as yours. For example, if you purchased your home for $25,000 and then gifted it to your child, your child’s basis in the home would be $25,000. If your child later sells the house when it is worth $100,000, he or she would have to pay capital gains tax on the profit of $75,000.

On the other hand, when your child inherits your home, he or she takes a “stepped-up” basis for the home. A “stepped-up” basis is essentially the fair market value of the home at the time of your death. So, if your same $25,000 house was worth $50,000 when you died, your child would have a $50,000 basis in the house. If the child were to then sell the home shortly after your death, he or she would likely pay no federal income taxes on the sale, since the basis would hypothetically be the same as the sale price.

The answer to how you should give away your home will be based on factors specific to your situation. If you have questions about how to transfer your home to your children, it is important to speak with an experienced estate planning attorney.

The post How to Give Away Your Home appeared first on Desert Law Group | Kimberly T. Lee.