Tax Time and Financial Planning

Legislative changes that impact same-sex married couples

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I wish all of my devoted readers (Hey Mom, I’ll call soon.) a prosperous new year full of many blessings. Welcome to 2020 and I hope you dream big! 

We ring in the new year with certainty as the clock strikes midnight on January 1st. Similarly, life has its certainties; death and taxes. I believe it is important to help clients work toward remaining aware of these inevitabilities. 

Due to recent, yet major, legislative changes, death and taxes can have unique issues if you are in the LGBT community. On June 26, 2015, the United States Supreme Court ruled that the Constitution guarantees a right to same-sex marriage. The Obergefell v. Hodges case required all states to grant and recognize same-sex marriage. To read the specific ruling, it can be viewed at https://www.supremecourt.gov/opinions/14pdf/14-556_3204.pdf

In 2013, the US Supreme Court ruled (in United States v. Windsor) that married same-sex couples were entitled to federal benefits. The specific ruling can be viewed at https://www.supremecourt.gov/opinions/12pdf/12-307_6j37.pdf

These rulings have transformed same-sex couples’ financial planning. Prior to the legalization of same-sex marriage, LGBT couples’ planning wasn’t so straightforward. LGBT couples weren’t able to file joint tax returns, access workplace health insurance plans, have marital property, claim spousal Social Security benefits, or be granted certain medical rights. 

The legality for same-sex marriage is so new, many LGBT couples aren’t aware of the legal ramifications of marriage. Some ramifications could be:

  • Marriage could increase taxes (commonly known as the Marriage Penalty)
  • Named beneficiaries on qualified accounts
  • Social Security planning 
  • Medical planning 
  • Estate planning

LGBT couples who have been cohabitating are not always aware of the marriage penalty that can increase taxes by as much as 12%[1] for a couple filing jointly. 

The beneficiary(ies) listed on any retirement plan will be individual(s) who receives the assets upon the death of the plan holder. The retirement plan owner’s last will and testament will not override the beneficiary designation on any qualified retirement plan. Same sex couples who have recently begun financial planning together may still not be aware of this. 

Married same-sex couples can now claim Social Security benefits linked to their spouse. This can play an important role in any couple’s retirement income. 

Legally married LGBT couples may experience a situation when one spouse needs medical attention (e.g. hospitalized). By nature, these can be stressful times and the stress can be amplified, for example, when an Advanced Medical Directive doesn’t exist and other family members do not accept the marriage. When legally married, family members can’t prevent a married partner from making medical decisions on their spouse’s behalf.  

Same-sex married couples should think about marital property and the implications of assets no longer being separately owned. If a married couple jointly owns property and one spouse dies, that entire property would receive a step-up in basis at death (assuming the couple lives in a community property state). Step-up in basis is the readjustment of the value of an appreciated asset for tax purposes. For non-married couples, only half the propertywould get a step-up in basis, which may expose the surviving partner to a big capital gain when the property is liquidated.

While there have been strides supportive of the LGBT community, there is still work to be done. For example, there is no comprehensive federal law that protects LGBT individuals from being fired due to their sexual orientation. This lack of protection can lead to job insecurity and pay inequalities. 

A new year brings hope. Here’s to continuing progress toward equal treatment of all. 

If we can be a resource for you, email JAMES.KNAPP@KNAPPADVISORY.COM.  

James C. Knapp, AIF®, BFA, CPFA®

www.KNAPPADVISORY.com

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

Investing involves risk including loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments


[1] https://taxfoundation.org/understanding-marriage-penalty-and-marriage-bonus/

SOURCEAero Crew News, February 2020
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James Knapp
James C. Knapp, AIF® founded Knapp Advisory Group to help professionals and retirees make informed decisions with their financial affairs. James believes financial success is a matter of choice, not chance. For over a decade, James has found the greatest satisfaction in helping his clients identify their financial, charitable and legacy goals. To help clients pursue their goals, James’ risk aware investment approach seeks to provide consistent, realistic total returns with lower volatility than traditional portfolios of equities and fixed income securities. James’ professional experience includes: · ACCREDITED INVESTMENT FIDUCIARY(AIF®) certificate, awarded from the Center of Fiduciary Studies signifying specialized knowledge of fiduciary responsibility and the ability to implement policies and procedures that meet a defined standard of care. · FINRA Series 24 General Securities Principal (As a registered principal with LPL Financial, James oversees operational, compliance, trading and sales operations in his office). · FINRA Series 7 General Securities Representative (held with LPL Financial) · FINRA Series 66 The Uniform Combined State Law (held with LPL Financial) · National Futures Association Series 31 Futures Managed Fund (held with LPL Financial) · Life, Health and Variable Insurance License (held with LPL Financial) James makes himself available to speak with friends and family members referred by his current clients. James, his wife Katie, their two sons & daughter reside in Prairie Village, KS. James graduated from Rockhurst University with a Bachelors of Science and Business Administration in Finance and Economics. Born and raised in St. Louis, James is a lifelong Cardinals baseball fan, enjoys attending any sporting event, volunteering his time to various community and charitable organizations. James serves on the Youth Entrepreneurs Kansas City Advancement Council Board.

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