retirement

Financial Strategies Many Married Same-Sex Couples Overlook

From Social Security to estate planning and tax breaks, take a look at a roundup of the rich benefits that marriage can afford.

In my experience, I have found that investors who are in same-sex relationships often manage their money as individuals rather than as a couple. And even for those who are married, many have simply grown accustomed to siloed financial planning. But for couples who have been together for years, or for those who have just gotten married, there are likely many financial benefits of marriage, as well as legal and medical benefits, they may not be aware of.

With the passage of the Marriage Equality Act in 2015, all the estate planning, tax planning and legal benefits that have been available to heterosexual couples for decades became available to same-sex couples. And while some benefits, such as hospital visitation rights or a simplified adoption process, fall on the family law side of things, the potential financial benefits are significant.

Estate Planning

Estate planning is an area that was impacted by the Marriage Equality Act in many ways. Right off the top, for married couples, generally, there are no estate or inheritance taxes due when assets pass from a husband or wife to their surviving spouse. Additionally, the assets transfer more quickly than they would if the couple weren’t married, as they avoid the time and expense of going through the probate process. It’s also worth noting that for a surviving partner who was not married, they might find themselves in an estate tax situation if the amount of assets exceeded the individual’s remaining lifetime exemption.

Wealth Transfer

For couples planning to pass their wealth on to the next generation, it’s important to understand that they have the ability to combine their lifetime exemption credits, which is currently $11.4 million for an individual. This allows a married couple to pass up to $22.8 million to their beneficiaries without incurring any federal estate or gift taxes. Being married also makes the exemption portable — the ability to maintain the combined (married) exemption amount ($22.8 million) after their spouse dies. While an unmarried couple could collectively pass $22.8 million ($11.4 million each) on to the beneficiaries of their choice, when one partner dies, the combined exemption amount is not portable to the surviving partner.

Tax Advantages

Beyond federal estate tax benefits, there are state inheritance tax advantages for married couples, too. For assets passed on to a surviving partner who was not married, there could be, depending on the state, inheritance taxes withheld from the benefit. In Pennsylvania, for instance, the tax on an inheritance to an individual who is not a spouse, child or sibling of the deceased is 15%. If the couple were married, the inheritance tax to a surviving spouse is 0%. There are gifting benefits afforded to married couples as well. Married couples enjoy the benefit of being able to combine their finances and move assets freely between each other with no gift tax issues. There is also no limit to the amount of money one spouse can gift to the other, tax free. In 2019, to gift to a non-spouse, the annual gift tax exclusion is $15,000 per person; married couples can combine their annual exclusion, which allows a couple to gift up to $30,000 to anyone, even if the assets technically belong to only one of them. U.S. citizens can, of course, gift more than the annual exclusion, they would just need to file a gift tax return and use some of their lifetime exemption or pay up to a 40% gift tax to do it.

Social Security

Social Security benefits are another component of planning that become more valuable and versatile when a couple is married. The Social Security benefit individuals receive is based on their history of taxable earnings, which is often disproportionate for many couples. The benefit for married couples is that the surviving spouse receives the higher of the two benefit amounts. This plays into another important aspect of Social Security — when you elect to begin drawing benefits. If you do not need the money for expenses or your lifestyle when you are first eligible, currently at age 62, your benefit amount will go up each year you can wait, maxing out at age 70. Suffice it to say, married couples have considerable latitude when it comes to incorporating Social Security income into their future cash flow planning.

Health Insurance

Another financial marriage benefit is the ability to include a spouse on your health insurance. Whether you receive health insurance as part of your compensation package from an employer or if you have purchased your policy yourself, if you are married, your partner can be covered under your policy. Additionally, the children of a married couple, whether they are direct descendants, adopted or from a previous marriage, can be covered by either spouse’s insurance up until the age of 26.

The Marriage Equality Act was a historic piece of legislation that leveled the financial planning playing field for millions of Americans. And there are many tools and strategies married couples can employ, but it’s up to each couple to move out of their silos and develop an integrated vision and plan to take advantage of them.

About the Author

Casey Robinson, CFP

Managing Director - Wealth Planning, Waldron Private Wealth

Casey Robinson is the Managing Director of Wealth Planning at Waldron Private Wealth, a boutique wealth management firm located just outside Pittsburgh. He focuses on simplifying the complexities of wealth for a select group of individuals, families and family offices. Robinson has extensive experience assisting multi-generational families with estate planning strategies, integrating trusts, tax planning and risk management.

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