Estate Planning Sandy UT

Estate Planning Sandy UT

Same-Sex Marriage Can Be Taxing

Estate Planning Sandy UTIn the case Windsor vs. U.S., the Supreme Court struck down the main provision in the Defense of Marriage Act (DOMA) that defined marriage for federal purposes as between a man and women. Generally, the Windsor case was not viewed as a tax case; however, there are profound and far-reaching tax consequences of this ruling. Estate Planning Sandy UT. The Supreme Court’s decision now requires the federal government to treat same-sex couples the same as married heterosexual couples if they are legally married in one of the states that permits same-sex marriage. Many questions still remain unanswered, such as how to resolve conflicts between state laws and to what extent these changes will be applied retroactively. There are a number of clear and present issues that impact tax law right now.

There are three main tax effects that result from this ruling. First, there is the right to file a joint tax return. Filing a joint tax return might result in a lower total tax liability for the couple. Typically, this is advantageous when one spouse is a higher wage earner than the other; however, it can actually create higher taxes if both spouses earn similar amounts and are highly paid. Depending on an analysis of the situation, it could be advisable to file amended tax returns or protective refund claims. Favorable situations could be where the couple would have lower taxes as result of filing jointly or where one spouse had capital gains that would have been cancelled out by the capital losses of the other spouse. The general statute of limitations for refunds is the latter of three years from the date of filing or two years from payment.

While the Windsor case itself applied retroactively in granting an estate tax refund, it is currently uncertain how the IRS will apply the decision to individual tax returns; retroactively to all cases where the statute of limitations has not run, only prospectively or only where protective refund claims have been filed.

Second, employers need to make the necessary administrative tax changes and adapt for the new benefits that married same-sex couples now qualify for. Employees’ withholdings might need to be updated to reflect their new filing status. Health coverage provided to same-sex spouses could now be tax-free. Additionally, pension and other retirement plans might also require tax-related administrative changes.

Third, ESTATE PLANNING Sandy UT is subject to major changes as a result of this ruling. Married couples receive favorable treatment on many estate and gift tax provisions. Same-sex couples should update their plans to take advantage of these changes:

  • The ability for the estate of the first spouse to die to transfer any unused exclusion amount to the surviving spouse.
  • The opportunity to receive a marital deduction for amounts transferred to the surviving spouse.
  • The ability to make split gifts.
  • The opportunity for either spouse to use the marital deduction to transfer unlimited assets to the other spouse during their life gift-tax free.

While these three issues reflect the major changes of the DOMA ruling, many other more minor tax changes result as well such as the deductibility of alimony.

There are two major caveats to the Windsor ruling. First, there are currently no decisive regulations or laws for same-sex couples who were legally joined together under marriage-equivalents such as domestic partnerships or civil unions. In cases where these situations apply, it might be worth filing protective refund claims in hopes that this issue is resolved in favor of marriage-equivalent relationships. Second, it is unclear how the changes in the law will apply where a same-sex couple work and live in states where one recognizes their marriage and the other does not.

If you think these changes could a have significant impact on your tax situation, give us a call to discuss how we can help analyze your personal situation.

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Areas of Service:  Estate Planning Sandy UT, Wealth Management Sandy UT, Wills Sandy UT.

Estate Planning Salt Lake City

Estate Planning Salt Lake City

The Importance of Reviewing/Updating a Will and Account Beneficiary Designations

Estate Planning Salt Lake CityIn his mid-twenties, Gary married a waitress named Tiffany. Estate Planning Salt Lake City The marriage lasted only a couple of years, and then Gary went on to marry Jill, had two children – Caroline and Sarah – and became a partner at his architectural firm. At age 50, Gary passed away suddenly from heart failure while running a half marathon. Sarah was a junior in college and Caroline had moved back home after graduation while looking for a “real” job.

While Jill had a lot on her plate as a new widow, she wasn’t worried financially because she and Gary had updated their wills just a year before. But what she learned next was devastating. Although Gary named Jill sole beneficiary in his will, he had never changed the beneficiary designation for his work 401(k) plan or life insurance policy since he’d started at his firm 25 years earlier. That meant that his ex-wife Tiffany, now thrice divorced and living in a trailer park, would receive the majority of the family’s assets.

This sounds like a one-in-a-million situation, but the fact is it represents one of the biggest mistakes people make in estate planning. It happens because people’s lives tend to grow richer and more complex as they get older. They switch jobs, buy homes, divorce and remarry, have children and stepchildren, adopt at a late age, and are completely swept away by a life filled with neighborhood barbecues, weekend youth soccer games and trying to make ends meet. Administrative chores like changing beneficiary designations on old accounts is one of those little details that is often overlooked.

A financial advisor might not ask about assets he does not manage, such as life insurance policies or a company 401(k) plan. As such, there might not be anyone reminding you to update account beneficiary designations for your employer retirement plan, IRA, annuity, insurance policy or even bank accounts.

Be aware that a will does not supersede the beneficiary instructions of these separate accounts; therefore, it’s important to review and update your beneficiary designations every so often for each of your accounts – and always whenever one of the following scenarios occur:

  • Marriage
  • Divorce
  • Remarriage
  • Job change
  • Retirement plan rollover
  • Birth of a child or grandchild
  • Adoption of a child or grandchild
  • Beneficiary dies or becomes disabled
  • One of the your financial institutions changes ownership

One common scenario is that of two separate families joining via a second marriage. If stepparents and stepchildren aren’t confusing enough, imagine the new couple decides to have a baby together who is much younger. The younger sibling may be resented by and not likely to have a strong relationship the older siblings, and yet, she could end up at their financial mercy if she is left out of the will and/or beneficiary designations.

The moral of this story is that writing a will is important to appoint a guardian for your under-age children, an executor for your estate and to communicate your desires. However, a will is not the last word on asset transfers, so it’s just as important to keep your account beneficiary designations up-to-date and consistent with your will.

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Areas of Services: Estate Planning Salt Lake City, Estate Planning Sandy UT, Estate Planning South Jordan