From the Estate Planning, Probate & Trusts Practice.
The right to marry now extends to more Marylanders than ever before. Under the Civil Marriage Protection Act, which took effect January 1, 2013, same-sex couples can obtain marriage licenses knowing that their unions will be recognized by the state. Federal recognition came some six months later with the U.S. Supreme Court’s decision in United States v. Windsor. These are exciting developments for the LGBT community, and couples who choose to marry will now enjoy many important benefits. Among these are the right to file joint tax returns, to receive Social Security and other government benefits, and to obtain health insurance from a spouse’s employer.
Being married also offers benefits in the realm of estate planning. Whether married or not, any couple in a committed relationship can help protect themselves and their loved ones with certain essential documents, including Wills, Powers of Attorney, and Advance Medical Directives. With a valid Will, you can designate who will settle your estate, who will inherit your assets, and who will serve as the guardian of any minor children. A Power of Attorney and Advance Medical Directive allow you to designate someone to manage your finances and health care if you are unable to do so yourself.
But even with these documents in place, an unmarried couple may face serious disadvantages if either partner should die. With the purchase of a marriage license and the exchange of vows, the same couple immediately acquires significant legal benefits:
The first is avoiding the Maryland inheritance tax. This 10% tax applies to assets left to anyone who is not a spouse or other close family member. For unmarried couples, the result can be a hefty tax bill. Especially if the estate includes few liquid assets, the inheritance tax may be difficult to pay. Some surviving partners have had to tap into their savings, invade their retirement accounts, or even sell the family home just to pay the tax. By turning strangers into kin, a marriage license makes this tax go away.
Another benefit is avoiding estate taxes, or at least delaying them. In Maryland, any portion of an estate that exceeds $1 million in value is taxed at the rate of up to 16 percent. The estate tax is less of a concern at the federal level, where only the portion of an estate that exceeds $5.25 million in value is taxed, but at the much higher rate of 40 percent. (Note that for purposes of either tax, the value of the estate includes the value of any life insurance or retirement accounts owned by the decedent.) Married couples avoid these taxes simply by virtue of their marital status; any bequest to the surviving spouse is tax-free. Taxes may still be due when the survivor dies, but even these can be avoided or reduced. Your attorney can prepare Wills that include provisions for a bypass trust—an effective estate-planning tool reserved to married couples.
Another important benefit is the right to title real estate as tenants by the entirety. This form of ownership is reserved to married couples and helps protect the family home from creditor claims. If either spouse is sued individually or files for bankruptcy, creditors are generally prevented from seizing and selling the property to satisfy the debt. And if either spouse dies, the property transfers automatically to the survivor. Retitling a house as tenants by the entirety is a simple matter of recording a new deed.
With all of these incentives in place, many gay and lesbian couples are asking whether there is any good reason not to get married. This is a fair question. One potential downside is the “marriage penalty” under the federal income tax code. This penalty applies to married couples with similar incomes, but the number of couples actually affected varies from time to time as the tax code is adjusted. Your accountant or tax preparer can tell you whether the penalty would apply to you and how much it is likely to be.
For most couples contemplating marriage, the legal benefits are of course a secondary consideration. Marriage may provide advantages that even the most carefully prepared estate plan cannot, but it is still chiefly a union of love and commitment, not a business venture. Even so, no matter how long a couple may have been together, marriage’s legal advantages are well worth considering.
This information is intended to provide general information about legal topics and should not be construed as legal advice.