If you die intestate (without a last will and testament), will your same-sex spouse be considered a “spouse” for purposes of inheritance?

by Mercedes Bugallo (Summer Associate) 

Yes.  One of the effects of the Whitewood decision is that same-sex spouses are considered a “spouse” for purposes of Pennsylvania’s intestate succession process. A person domiciled in Pennsylvania who dies without a will is said to have died “intestate” and his or her estate is divided according to Pennsylvania’s intestate succession laws. The existence of surviving children or parents will affect the amount of the estate and other property to which the same-sex spouse is entitled.  If the deceased left no children or parents, then the surviving spouse inherits everything. Importantly, property inherited from a spouse is exempt from Pennsylvania’s estate tax.

For more detailed information, please refer to this chart, located on the Allegheny Register of Wills’ website: http://www.alleghenycounty.us/wo/probate/intestate.pdf

 

 

Designating Your Same-Sex Spouse as the Sole Beneficiary in Your Will

 

By David K. Goldfarb (Summer Associate)

Question: If your will designates your same-sex spouse as the sole beneficiary, will your relatives have a valid (and potentially successful) claim against your estate?

Estate planning can be a very stressful time for all married couples, especially when children and other relatives need to be considered.  However, under normal circumstances, one need not be overly concerned with the validity of his will and the possibility of relatives bringing claims against a surviving spouse that has been designated as the sole beneficiary under that will. It is typically very difficult to challenge a will. Approximately 99% of wills are enforced without any issues. Courts interpret wills as the voice of the testator (the person who wrote the will). Since that person is deceased and no longer able to express his wishes, courts are extremely hesitant to alter the terms of the will.

As a general rule, a party must have an interest in order to challenge a will, and that interest must be substantial, direct, and immediate. It is very likely that a court would conclude that close relatives, like children, have a substantial, direct, and immediate interest in your will. Thus, your relatives would likely be able to bring a claim against your estate. However, such a claim is unlikely to prevail.

As an initial matter, Pennsylvania law expressly allows you to disinherit (deprive someone of inheritance) every individual other than your spouse.  Furthermore, your relatives, or any other challenger, would have a very limited number of grounds for bringing a claim against your same-sex spouse. Most grounds address the procedural process for the creation of a will and are easily addressed by retaining an attorney to assist in your estate planning. The two substantive grounds are that the individual lacked the mental capacity necessary for creating a valid will and that the will was procured by fraud, forgery, or undue influence.

In order to challenge a will based on mental capacity, the challenger must prove that the testator did not understand the consequences of making the will at the time of the will’s creation. Adults are presumed to have the necessary mental capacity required for the creation of a will, thus this argument is usually limited to the context of an individual diagnosed with dementia who revises their will towards the end of their life.

In order to challenge a will based on fraud, forgery or undue influence, the challenger essentially must prove that the will was not created by the deceased or that the deceased was forced via threats to create the will. No matter the situation, it would be wise to have several witnesses, including an attorney, present during the creation of your will. Most states require a typed hard copy of the will signed by the testator in the presence of at least two adult witnesses who are not named as heirs in the will.

It is advisable to consult with a Trusts & Estates attorney as part of your estate planning to ensure that no potential claimant could prevail against your same-sex spouse in challenging the will.

 

First Read on Same-sex Spouse Health Benefits Post Windsor

 

by:  John H. Wilson

The issues of same-sex spousal rights to benefits is now largely resolved; however, substantial questions about same-sex spouse health and welfare benefits remain.

To see the full story, click on the link below:

http://www.bipc.com/files/media/misc/11e4d4de9ce2b59482c528e2d1c3f3a0.pdf

John H. Wilson is a Shareholder of Buchanan Ingersoll & Rooney PC whose practice is primarily focused on employee benefits, ERISA and deferred compensation matters.

Gift tax Consequences of Real Estate Transfers

By Lauren Sweeney

Often times, one partner in a same-sex couple owns real property and seeks to add the other partner to the title or deed for no consideration (i.e. when no money or other type of payment is received in return).  Though this may appear to be a straightforward process, it is important to keep in mind that there are tax consequences for so doing. This type of one-sided property transfer constitutes a taxable gift for federal gift tax purposes.  Under the federal tax laws, there is a gift tax reporting obligation to the extent that the fair market value of the gifted interest, exceeds the available annual exemption in the year of the gift.

This reporting obligation does not necessarily imply a tax liability.  According to The American Taxpayer Relief Act, each American taxpayer has a $5 million cumulative lifetime gift and estate tax exemption.  This means that any amounts given during life or transferred upon death that total less than $5 million will be transferred free of tax.  Additionally taxpayers are allowed to make annual gifts up to $14,000, per recipient, which gift does not count towards the $5 million lifetime maximum exemption.   Any gift amount to an individual that exceeds $14,000 is considered a taxable gift, and the taxpayer who made the gift is required to file a gift tax return.  Gifts that exceed the annual exemption amount accumulate from year to year and count toward the $5 million lifetime maximum exemption, as do any assets that are part of an inheritance.

The use of a “tenancy in common” may be a beneficial means for gifting the other partner into ownership with minimal gift tax consequences. Because the shares of ownership do not have to be equal in a tenancy in common, the partner may choose to gift a share of the property to the other partner each year (up to the annual exclusion amount) until the desired property apportionment is received.   Best-practices compliance involves not only a gift tax return filling, but also a real estate valuation of the fractional interest being gifted.

Since the repeal of DOMA, legally married spouses can transfer property to their spouses free of the gift tax.  For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married.  However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.  Gifts to your spouse are eligible for the marital deduction.

Due to the complexity of both real estate and tax law, it is advisable that individuals consult with an attorney prior to adding his or her same-sex partner to a title or deed to ensure proper reporting of both the real estate transfer and gift tax reporting.

Adoption Tax Credit for Same Sex Couples

About the Adoption Credit

Under The Internal Revenue Code Section 36C, an individual taxpayer may claim an adoption credit for qualified adoption expenses paid or incurred by the taxpayer. The total qualified adoption expenses that may be claimed as a credit for all taxable years is limited to $10,000 adjusted for inflation (the 2013 amount is $12,970).  The amount of the credit is reduced proportionately if the taxpayer’s modified Adjusted Gross Income is between $194,580 to 234,580. The credit is nonrefundable, if a taxpayer owes no federal taxes, he or she cannot receive a refund; however the taxpayer can carry the balance of the credit forward for up to five years.  A non-refundable credit can reduce the amount of tax the taxpayer owes to zero, but not below. On the other hand, a refundable tax credit can reduce the taxpayers to zero and the IRS refunds remaining balance to the taxpayer.

Same Sex Adoptions and the Adoption Tax Credit

Both same sex partners (if each is an adoptive parent) may qualify for the adoption credit on the amount of qualified adoption expenses paid or incurred for the adoption. The same sex partners may not both claim credit for the same qualified adoption expenses and neither partner can claim more than the amount that he or she incurred. If two same sex partners each paid qualified adoption expenses, to adopt the same child and those expenses exceed the $12,970, the maximum credit available is still $12,970. The partners may allocate this amount between them any way they agree, but the amount allocated may not be more than the amount paid or incurred.

Traditionally, qualified adoption expenses do not include the cost of adopting a spouse’s child.  If a couple is in dire need of the tax credit, it may be beneficial to postpone marriage until the potential spouse’s child is legally adopted. In addition, the law specifies that the adoption credit is not available to the biological parent, so the credit should be claimed by the non-biological parent.  In cases like this, it is extremely important that the non-biological parent be able to prove that he or she is the one who paid for it – for example, by using separate banking accounts and credit cards.  (Click here for additional IRS answers to FAQ’s regarding same-sex adoption credits).

Now that same sex marriages are recognized under both federal and Pennsylvania law, a married couple can claim the credit by filing a joint tax return as long as neither spouse is a biological parent and the child is adopted by both parties after the marriage.

For more information on the adoption tax credit or tax return preparation in general, please contact Lauren Sweeney in our Pittsburgh office at (412)-562-1530. Lauren is a tax specialist with over 8 year preparing both simple and complex individual income tax returns.

 

All Legal Same-Sex Marriages Will Be Recognized for Federal Tax Purposes

 

 Ruling Provides Certainty, Benefits and Protections Under Federal Tax Law for Same-Sex Married Couples

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

See the full article at:

http://www.treasury.gov/press-center/press-releases/Pages/jl2153.aspx

 

DOMA – Tax Treatment of Domestic Partner Health Benefits

 

By John E. McGrady, III

One question that employers have been exploring recently is whether you can stop taxing health benefits in light of the U.S. Supreme Court’s recent decision declaring the Defense of Marriage Act’s definition of marriage unconstitutional.  The complete answer is still somewhat unclear, and there are several basic tax principles to consider.

For individuals who receive domestic partner health benefits, but who are not legally married, the tax treatment will remain the same.  However, with respect to same-sex individuals who were legally married in one of the states that recognize same-sex marriage (or the District of Columbia) and who continue to reside therein, the health benefits provided to the non-employee spouse will no longer be taxable.  Currently 12 States (Massachusetts, Connecticut, Iowa, Vermont, New Hampshire, New York, Rhode Island, Delaware, Minnesota, Maine, Maryland and Washington) and the District of Columbia recognize same-sex marriage.  Also, in light of the Supreme Court’s decision to not rule on the Proposition 8 case, California will now start issuing same-sex marriage licenses.

With respect to individuals who were legally married in one of these states but who now reside in a state that does not recognize same sex-marriage, the taxation of health benefits is currently unclear.  The reason for this uncertainty is due to the fact that, for federal income tax purposes, the IRS traditionally looks to the state of residence to determine marital status.  Additionally, the Supreme Court’s ruling left in place the provisions of DOMA which provide that states need not recognize same-sex marriages occurring in another state.  While it is anticipated that the IRS is going to issue some form of new guidance in the near future to override this result for Federal income tax purposes (i.e., so that individuals covered by this situation are also treated as married for federal income tax purposes), the extent and effect of such guidance is not yet known.  Interestingly, a United States District Court recently ruled that, under Ohio law, the marriage of a same-sex couple who were validly married in another state must be recognized in Ohio.

While the Supreme Court’s decision does not specifically address retroactive application, in light of the fact that the relevant provisions of DOMA addressed by the Supreme Court were held to be unconstitutional, it may be possible to file refund claims for the employer’s and employees’ payroll taxes that were paid on imputed income from health benefits.  This would potentially cover any open tax years (i.e., 2010 forward).

For more information on this subject, please contact John McGrady at john.mcgrady@bipc.com or 412-562-1388.

John E. McGrady, III, concentrates his practice on employee benefits and executive compensation matters.  He is also a member of the Nontraditional Couples and Families Group.

 

Guidance on the Extension of Benefits to Married Gay and Lesbian Federal Employees, Annuitants, and Their Families

The federal Office of Personnel Management has made clear that benefits will be available for the lawful same-sex spouses of all federal employees without regard to whether the federal employee is living/working in a state recognizing same-sex marriage or not.  We are still awaiting guidance on other issues affecting married same-sex couples, such as income tax filing status and social security benefits.

For the full memorandum, see the attached:

http://www.chcoc.gov/transmittals/TransmittalDetails.aspx?TransmittalID=5700