If same-sex couples are to benefit from the DOMA decision, they should have an estate plan, Hoffmeister noted. Affluent same-sex couples should review their plans to ensure they are comprehensive and effective, planning around benefits now available from unlimited marital deductions and qualified retirement plans. Financial advisors should monitor their clients’ plans since laws regarding same-sex marriage are rapidly evolving, he added.
Trusts Matter
Same-sex couples can now use several stalwart trust strategies once available only to opposite-sex married couples, Hoffmeister said, including the important qualified terminable interest property trusts (QTIPs). These allow the first spouse who dies to control the ultimate disposition of the property after the surviving spouse’s death while still taking advantage of the estate-tax marital deduction and providing an income stream to the survivor. At the latter’s death, future beneficiaries named in the trust become the trust’s beneficiaries.
Same-sex couples that are not legally married also have access to trust strategies to reduce estate taxes and protect their partners and children, he said.
Grantor retained income trusts, which can be set up only between individuals unrelated by marriage or birth, provide an income stream for the trust’s creator while reducing estate taxes for his or her surviving partner or the non-biological or adopted children of the trust’s creator. Irrevocable life insurance trusts can shield life insurance proceeds from federal estate taxes for couples that are unable to marry and so cannot take advantage of the unlimited marital deduction, Hoffmeister said.
Especially important are revocable living trusts for same-sex couples that have reason to believe their wills could be challenged by family members, he said. Assets are retitled into the trustee’s name, usually the trust’s creator. The trust provides for the grantor and his or her partner and children during any period of incapacity before death, and because the trust owns the assets, the designated successor trustee can take over for a smooth transition. The trust has the same provisions the grantor would have put in a will, and avoids probate at death.