LGBT financial planning considerations

June 2013 created major financial planning changes for same-sex married couples. The Windsor ruling, which overturned section 3 of the Defense of Marriage Act, provides different financial planning strategies and workplace benefits.

It’s important for same-sex married couples to review these changes and become more prepared about your financial future. The changes include: spousal healthcare, tax-favored healthcare accounts, retirement plans, and dependent care flexible and health care spending accounts, regular IRAs, Roth IRAs, spousal IRAs, Estate, Gift, and Tax Planning.

What does this all mean for the same-sex couple?

• Survivor benefit protection in defined benefit and defined contribution plans
• If divorce occurs, each spouse will now have rights to the other spouse’s benefits under any qualified retirement plan governed by ERISA.
• Dependent care and Flexible Spending Accounts are now limited to $5,000 per couple instead of $5,000 each.
• IRAs can be transferred to your own account avoiding distributions until age 70 1/2 instead of an inherited IRA where distributions must occur by the end of the next year after death.

The Internal Revenue Service and the Department of Labor have ruled that same-sex couples who were legally married in any state that recognizes such marriages will now be treated as married for federal tax purposes, regardless of where they live. Each spouse will be recognized as a spouse for benefit purposes regardless of where your employer is based.

In states that currently recognize same-sex marriage, spouses in these relationships gain all the benefits and protections of marriage that these states offer. Other states may provide the equivalent of state-level spousal rights to same-sex couples within the state through civil unions or domestic partnerships. And still others don’t recognize same-sex marriages from other states, which is the case in Kansas, Oklahoma, Missouri and Texas. It's extremely important to understand what protections you have in the state in which you live.

The Social Security statute addressing marriage currently defines marriage based on state law where an individual resides. If the state where the individual resides doesn’t recognize the marriage, the Social Security Administration does not recognize it either.

Benefits of Financial Planning

• Estate Planning Strategies: Handling wealth transfer strategies to increase financial protection in the event of either partner’s death or reduction of estate taxes.
• Titling of Assets and beneficiary arrangements: Deciding the best techniques for property and investment ownership.
• Tax planning: Make practical tax-efficient planning decisions.
• Retirement planning: Learn your income distribution retirement strategies from investment sources.
• Education planning: Review various investment and tax advantaged strategies to save toward college for children
• Goal Planning: Short term planning goals. Establishing a nest egg for emergencies, to have a child, buy a car, vacations, etc.
• Ongoing monitoring: The financial advisor monitors your plan yearly and update every three years.

Estate Planning Concerns

Get a Will: A will is simple and inexpensive document. You can avoid probate by using these estate planning tools:

• Living Trusts
• Transfer-on-Death Accounts, Registrations, and Deeds
• Joint Ownership

Health care directives let you set out your wishes for end-of-life health care. With a financial power of attorney, you give another person power over your finances.

- Limited power of attorney for a specific purpose or time

- Durable power of attorney, while incapacitated.

Estate Taxes: If you and your partner are not married, you won’t be able to use the marital deduction that married couples use to avoid these taxes. The Federal Estate Tax Exemption was $5.25 million in 2013.

Financial Planning is an organized proactive process for wealth management, retirement planning, cash flow and liabilities, educational planning, risk management and estate planning. All of which creates a lasting legacy.

Securities and investment advisory services offered through FSC Securities Corporation, Member FINRA/SIPC and a registered investment advisor. Advance Financial Lighthouse, Inc. not affiliated with FSC Securities Corporation or registered as a broker-dealer or investment advisor.

by Kathy Williams, Financial Columnist

The Gayly – June 15, 2014  @ 12:40pm