In October, same-sex marriage officially became legal across the state of Nevada. This will now change the way same-sex couples in Nevada conduct their estate planning. It is important that these married couples take the necessary steps to take advantage of their new legal rights and adjust their estate plans accordingly.
The Supreme Court case United States v. Windsor changed federal policy, so that the federal government will recognize same-sex marriages in states where same-sex marriages are legal. On August 29, 2013, the IRS issued new guidelines on how that decision would affect IRS processes. Windsor does not affect states that do not have same-sex marriage, but states like Nevada are affected and couples in these states will now receive the same federal benefits and obligations as other married couples.
How Will This Affect Estate Planning?
Firstly, same-sex married couples can now take advantage of the unlimited marital deduction when transferring property between the spouses. Because of the deduction, these couples that already have estate plans must review them immediately. Estate plans are often written with formula clauses. For instance, estate plans may have a provision that transfers the maximum tax-free amount to the partner and then transfers the rest to a charity. Because these couples now benefit from the deduction, these formula clauses may now transfer more to the spouse than originally intended and it’s even possible that all would be transferred to the spouse and nothing would be left for charity. The American Bar Association recommends that same-sex couples review their estate plans and make sure they understand how much will be transferred to their spouse and how much will go to charity. They can then make changes to the plan if it’s appropriate.
Some estate plans might have created trusts because the deduction was not available. With legal same-sex marriage in the state of Nevada and the repeal of DOMA through Windsor, these couples may decide to terminate these trusts and take advantage of the marital deduction instead.
Section 2 of DOMA
Despite all of these changes that came with the United States v. Windsor, the Supreme Court decision did not strike down Section 2 of DOMA which ensures that states without same-sex marriage don’t have to recognize the marriages of other states. Because of this, same-sex couples should still take extra precautions to protect their estate and their interests in other states. According to Nolo.com, spouses should carry power of attorney regarding health care decisions, so that they can still make health care decisions for one another when they are traveling in states without same-sex marriage. In addition, spouses should always obtain adoptions for their children if they are not the birth parent. Without adoption orders, they may not be recognized as the parent when traveling through states without same-sex marriage.
All couples throughout Nevada may now enjoy many benefits that were not available to them a few months ago. The legalization of gay marriages will affect financial planning and estate planning for same-sex couples. Now with these changes underway and slowly being implemented, it is the time for couples to review their estate plans and make sure they are structured as intended to satisfy their obligations to their spouses as well as to charities.