Estate planning for married couples offers many advantages. Married couples are able to file a joint Federal Income Tax return which can lead to an overall savings. There is also a Federal Estate and Gift Tax marital deduction for passing property to a surviving spouse. This deduction allows the transfer taxation to be deferred until the surviving spouse passes the property – either during life or through a testamentary transfer. A surviving spouse can also use the remainder of a deceased spouse’s allowable exclusion (which is $5.25 million per person as of January, 2013). There is also a spousal rollover option for individual retirement accounts that allows a surviving spouse to treat the deceased spouse’s IRA account as his or her own. Without this, the IRA becomes payable over the life expectancy of the oldest beneficiary of the account. Married couples can also own real property as a tenancy by the entireties. This is a joint form of ownership that has a right of survivorship. There is also an elective share available to the surviving spouse and entitlement to social security benefits.
However, Florida does not recognize same sex marriages, civil unions, or registered domestic partner relationships. Fla. Stat. § 741.212; Wilson v. Ake, 354 F.Supp.2d 1298 (M.D. Fla. 2005). Thus, same sex couples in Florida cannot avail themselves of many of the estate planning tools or intestacy laws available to heterosexual couples. In Florida, the surviving spouse would be entitled to all or a large portion of (depending on children) the decedent’s estate under intestacy. Under intestacy, the surviving spouse in a same sex relationship would take nothing and the estate would pass to the heirs at law as determined by the intestacy statute. Until Florida recognizes gay marriages, civil unions, or registered domestic partnerships, it is extremely important that a same sex couple have a will, trust, or other plan for passing assets at death.
What can a same sex couple do to protect their loved ones at death? There are ways to take advantage of tax breaks and planning tools available for same sex couples in Florida. First, each person has a $5.25 million allowable exclusion. A same sex couple could also take advantage of the annual gift exclusion which allows a yearly exclusion of $14,000.00 under IRC §2503(b). Any appreciation of the gifted amount also escapes federal estate and gift taxation. A partner can also set up a gifting trust for the benefit of the other partner and transfer property to the trust. If the beneficiary has the right to withdraw contributions to the trust, these can qualify for the annual exclusion. It is important to note, that there are tax implications in transferring property to a trust.
Trusts are often a great option for the transfer of assets of a same sex couple. One type of trust a partner in a same sex couple can create is a charitable trust. This type of trust can allow a payout over time or can leave the remainder to a surviving partner. There is another type of trust that can help same sex couples transfer assets to each other. It is called a Grantor Retained Income Trust (“GRIT”). For a same sex couple, any asset can be transferred to a GRIT. Another form of trust is a Grantor Retained Annuity Trust (“GRAT”). This type of trust is similar to a GRIT, but the partner that creates the trust receives a fixed annuity amount over a defined period of time.
Finally, same sex couples in Florida can use Domestic Partner Agreements to fix their wishes as to property dispositions. Florida does recognize these agreements under the holding in Posik v. Layton, 695 So.2d 759 (Fla. 5th DCA 1997). Additionally, basic estate planning documents such as revocable trusts, wills, durable power of attorney, and health care surrogate should be executed.
If you or someone you know is a partner in a same sex couple who needs help tackling the hurdles of same sex estate planning, the lawyers at Chepenik Trushin LLP can help.