Financial and estate planning can be complicated for LGBTQ+ couples. Even with all the liberties granted by the country, the community is still only making inroads in achieving financial stability.
When it comes to unlocking and reaping long-term financial benefits, legal marriage is an important factor for you and your partner. There are several advantages of being married. Check them out below:
Earlier, there used to be a “marriage penalty” where couples filing jointly ended up shelling out more than what single people were paying. This all changed in 2018 after a row of tax law changes reduced the difference.
You are entitled to get social security spousal and survivor benefits which also applies if you get divorced after 10 years of married life.
Your employer’s health plan and other health benefits can cover your legal spouse too. Moreover, even if the time for open enrollment has ended, in the case of a recent marriage, it qualifies as a life event that generally allows for a special enrollment.
A Health Savings Account (HSA) or a Flexible Spending Account (FSA) allows the expenses incurred by an employee, their spouse or the spouse’s children to be reimbursed tax-free, with the clause that the money was used to pay for qualified medical expenses. You can also avail of the benefits of dependent-care FSAs that can be used for the daycare expenses of dependents.
When it comes to retirement savings accounts like 401(k) plans, your spouse is the beneficiary by default unless you give written consent to designate someone else. In the case of a divorce, the retirement account can be divided with a Qualified Domestic Relations Order.
Retirement Plan Rollovers
For an inheriting spouse, an easy way to defer the required minimum distributions until you are 72 is by rolling over the inherited assets to your own IRA. Under the SECURE Act, a non-spouse inheriting an IRA is required to withdraw the complete balance within 10 years of the IRA owner’s death.
This is where some of the best paybacks are. LGBTQ+ spouses of members of the military enjoy a range of marriage equality military benefits – from pension survivor benefits to health care and housing.
Married couples can present unlimited gifts to one another. But if you are unmarried, gifts of over $15,000 you give annually to one another can eat into your lifetime federal gift and estate tax exclusion. If you are legally married, you can also avail the “gift splitting” facility that allows married couples to split the total value of a gift to a third party. This gives you the benefit of treating it as though each spouse has contributed equally to the recipient.
You can leave any amount without limitations as a married person to a legally recognized US citizen spouse at the time of your death without incurring federal estate taxes. If your assets pass to anyone other than a spouse, the recipient can incur an estate tax. This only applies if the value of the assets exceeds the federal estate tax exclusion amount of $11.7 million per person for 2021.
Moreover, the tax liability can be higher in states that have separate state gift, estate or inheritance tax. A surviving spouse should be able to take advantage of portability — which allows you to utilize a deceased spouse’s remaining unused exemption.