October 01, 2016

Estate Planning for Same Sex Couples: Public and Private Benefits (Federal and State)

Joan M. Burda

Reprinted with permission from Joan M. Burda, Ch. 13, "Public and Private Benefits (Federal and State)," in Estate Planning for Same Sex Couples (3d Ed. 2016), at 225-47. Copyright © 2015 by the American Bar Association. Reprinted with permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

 

In 1997, the General Accounting Office (GAO) issued a report listing 1,049 federal statutory provisions concerning benefits, rights, and privileges that were contingent on marital status.1 The GAO updated that report in January 2004.2 As of December 2003, the GAO identified 1,138 federal statutes that used marital status as a deciding factor in providing benefits, rights, and privileges.

Once the U.S. Supreme Court issued its decision in United States v. Windsor3 the world changed for same-sex married couples under federal law. For the first time most of those 1,138 federal benefits, rights, and privileges are available to married same-sex couples. By striking down section 3 of the Defense of Marriage Act (DOMA),4 the federal government was required to recognize same-sex marriages. The U.S. Supreme Court once again declared marriage a “fundamental right” that cannot be denied to same-sex couples. Marriage equality is established throughout the United States.

Married same-sex couples are no longer deprived of more than 1100 federal benefits that are premised on marriage. They will be treated like all other married couples under federal law. No exceptions. This chapter provides an overview but does not cover every possible contingency or situation and does not address all 1,138 federal rights, benefits, and privileges.

 

A. Social Security

Social Security law can be complicated, convoluted, and confusing. Collaborating with a lawyer who is experienced in the area is essential. An alternative is joining the National LGBT Bar Association and gaining access to a remarkable selection of lawyers who have the expertise and know how it applies to the LGBT population—married and single.

The SSA system of benefits can be confusing. The SSA website5 has information, pamphlets, and all necessary forms to help people understand the process.

People can start applying for SSA retirement at age 62. This results in a permanent reduction in benefits paid. Full retirement age varies and is based on the applicant’s birth year. The maximum benefit is available at age 70. Another reason to resist accepting SSA benefits at 62 is the reduction assessed for amounts earned over the yearly earnings limit. SSA deducts $1 for every $2 over the annual limit. The 2015 annual limit is $15,720.

Retirement Spousal Benefit

The nonearning or lower-earning spouse can receive the retirement spousal benefit on the other spouse’s SSA account. A spouse is eligible if her retirement benefit on her own account is less than 50% of her spouse’s benefit or when she delays applying for retirement on her own account. A spouse can apply for and receive benefits on the other spouse’s account and delay filing on her own account up to age 70.

The spousal benefit for a single-earner couple is 50 percent while both spouses are alive. When both spouses have earned benefits, the lower-earning spouse can receive her own benefit plus a spousal benefit up to 50 percent of the higher earner’s amount.

The couple must be married for at least 12 months before applying for spousal benefits. The spouse must be at least 62 to be eligible. The exception is when the couple has a child who is under 16 or disabled. Then the spouse can apply at any age.

Surviving Spouse

In order for a surviving spouse to be eligible for retirement benefits, she must be at least 60 and married nine months. There are exceptions to this rule, such as if the wage earner’s death resulted from an accident.

The surviving spouse must be at least 50 and disabled or any age if she has the worker’s child in her care who is under 16 or disabled. And, the couple must have been living together. Exceptions include the deceased spouse being in a hospital or nursing home.

There are some other things to consider. The “surviving spouse” can collect if she or he remarried after age 60 and the former spouse is dead when the application is filed. The previous marriage must have lasted at least ten years to be eligible to submit a claim on the former spouse’s record.

The SSA issued new guidelines on June 11, 2014, addressing benefits for aged spouses in same-sex marriages.6

Disability Spousal Benefit

If the worker qualifies for SSA disability benefits, the spouse may receive a benefit up to 50 percent of the worker’s amount. The eligibility requirements are similar to those for retirement benefits.

Lump Sum Benefit

The SSA pays out a one-time lump sum of $255 to the surviving spouse or, if there is none, to a minor child. However, there are conditions that must be met. The lump sum is not paid to other family members. The surviving spouse can apply for this lump sum benefit up to two years after the death.

Child’s Benefit

A worker’s children are eligible for assistance if one or both parents are disabled, retired, or deceased. The agency uses state law to determine whether a parent-child relationship is recognized. This can create a problem for same-sex couples if their state of residence does not recognize a parent-child relationship with the deceased parent. It is another reason why same-sex couples should consider formalizing the parent-child relationship through adoption.

Even if the child was born during the marriage, absent an adoption, the parental rights of the nonbiological parent may not be recognized. And, Social Security may deny benefits if the state does not recognize the parent-child relationship. The SSA uses the law of the state of residence to determine recognition of a parent-child relationship and an adoption will qualify.

Couples that use assisted reproductive technology when starting their families need to consider the legal status of those children in relation to this benefit. Posthumous children that are not specifically provided for in a parent’s will may be deemed ineligible for benefits. Proper drafting is essential to ensure these children are covered.

Civil Unions, Domestic Partnerships, and State of Domicile

The Social Security Agency is using a couple’s pre-existing civil union or Registered Domestic Partnership to establish the length of marriage. This applies if the state treated the non-marital legal relationship as comparable to marriage.

Divorced Spouses

This situation will begin to arise at some point but will not be very prevalent at this time. A divorced spouse can apply for benefits on the former spouse’s record if the marriage lasted at least ten years. The divorced spouse cannot be presently married unless she is over 60 and the previous spouse is dead. She will also need to meet the other requirements specified above.

There is no reduction in benefits for either the worker or her current spouse if a former spouse applies for benefits.

Transgender Spouses Under Social Security

SSA has released guidance affecting transgender and same-sex spouses. The SSA now recognizes that gender transition does not affect the validity of an existing marriage. Marriage-related benefits are based on the law in the claimant’s state of domicile. But the holding in Obergefell resolves the issue for transgender spouses as well. It no longer matters when the transition occurred. The marriage is valid, if it was lawfully entered.

The SSA policy will still have an influence on cases involving unmarried same-sex couples who are in a civil union, domestic partnership, or Registered Domestic Partnership.

A postmarriage transition by a transgender spouse affects neither the validity of the marriage nor that spouse’s eligibility for SSA benefits. The SSA policy implies that couples in civil unions or domestic partnerships will be recognized if the account holder lived in a state that recognized that relationship with intestate rights for spousal inheritance. In those situations, the application will be processed.

 

B. Medicare

Medicare is the health insurance program for persons 65 and older. It includes Part A: Hospital; Part B: Medical; Part C: Medicare Advantage Programs (private health care plans); and Part D: Prescription Drug Coverage.

One of the advantages of marriage is the opportunity to delay enrolling in Medicare Part B without penalty if the spouse is on an employee spouse’s group health care plan.

The normal general enrollment period (GEP) is from January 1 to March 31 and coverage starts on July 1. The GEP for 2014 was extended to May 31, 2014, because SSA delayed in releasing this guidance.7

Clients in a same-sex marriage who were charged penalties and previously had coverage through a spouse’s employer may seek a rollback.8

Part A (Hospital Insurance Under Medicare)

The importance of spousal recognition comes into play if one person does not have enough work credits. Each person must have 40 quarters (roughly ten years) of work history to qualify for Part A benefits and not be required to pay a premium. The premium can be several hundred dollars.

If a person does not have enough credits on his own record, he may qualify for Part A and either no premium or a reduced premium if it is based on his spouse’s record.

To qualify for Part A, without a premium, on a spouse’s record, the other spouse must be at least 65, be a U.S. citizen or legal resident for five years, and have a current spouse who is at least 62 and receives or is eligible to receive Social Security or Railroad Retirement benefits. And, current spouses must have been married at least one year; divorced spouses must meet the ten-year rule and widows must meet the nine-month requirement.

While a premium waiver requires 40 quarters of work history, a reduced premium requires 30 quarters. The rest of the requirements are the same.

A situation may present where an individual has been paying Part A premiums because DOMA prevented recognition of her same-sex marriage. She may be entitled to recover those past premiums. It is possible to seek equitable relief when a person has “been prejudiced by the error, misrepresentation, action or inaction of an employee or agent of the government. This relief may include, but is not limited to, providing special enrollment and/or coverage periods and appropriate adjustment of premium liability.”11

Part B (Medicare Coverage for Doctor Bills)

Applications for Part B must take place when the person turns 65. This insurance covers doctors. If enrollment does not occur at 65 there is a 10 percent lifetime penalty for every year without enrollment. There is a seven-month around turning age 65 to apply.

The exceptions are the person is working and remains on the employer’s health plan. That can continue for up to eight months after leaving the employment or if the person is on his spouse’s current employment-based health plan. Under these circumstances there are no penalties.

To qualify for the spousal exemption, you must have a valid, recognized marriage. This leaves out any married same-sex couples living in a nonrecognition jurisdiction. The spouse must be considered a spouse at the time of applying, must have been spouses at age 65, must be covered through the spouse’s health plan, and the spouse must still be working.

Health insurance benefits under an employer’s domestic partnership plan do not qualify. The plan must recognize the spouses as such. The SSA has been notorious over the past few years for giving wrong information to same-sex couples. If that happens, seek equitable relief by referring to the SSA’s Program Operations Manual System (POMS). This is the SSA rulebook and addresses every policy the agency implemented and follows.

Not enrolling in Part B at age 65 may result in delays in enrolling in the future. The spouse may be required to wait for an open enrollment period (usually January 1 to March 30 annually). That may result in a gap in coverage. Consideration needs to be given to when it is best to enroll, even if the other spouse’s employer-provided health insurance covers the spouse.

Part D (Prescription Drug Coverage Under Medicare)

As long as the person has creditable prescription drug coverage, there is no requirement to enroll at age 65. There are no penalties assessed for delaying enrollment. To be creditable, the plan must be as good as the basic federal plan. The spouse’s employer will notify employees each year if the plan meets those criteria.

Once that plan ends, enrollment in Part D must take place within 63 days.

Parts B and D Premiums

Premiums for Parts B and D are based on a married couple’s joint income. The threshold is $170,000. The individual threshold is $85,000.The premiums increase at higher income levels. Parts B and D premiums are based on the couple’s modified adjusted gross income (MAGI) that was reported on their federal tax return for the previous two years. The MAGI is adjusted gross income plus tax-exempt interest income.

Same-sex married couples can be at a disadvantage because their earlier tax returns may be viewed under the “individual” threshold if they did not file jointly.

Note: Married same-sex couples can file amended tax returns for the previous three years. All married same-sex couples were required to file jointly for 2015.

It may be possible for married same-sex couples to get a premium adjustment from the SSA. There is a process but, so far, no guidance from the agency on what it will do in cases involving same-sex couples. And, unless there is an overall fix, married same-sex couples living in a nonrecognition jurisdiction will be treated differently from those in the marriage equality jurisdictions.

Low-income individuals and couples can seek assistance of up to $4,000 to pay Medicare costs, including premiums, deductibles, and prescription co-pays, through the Extra Help Program. Individual resources cannot exceed $13,330 and income cannot exceed $17,235. Couples are limited to $23,265 in income and $26,580 in resources. There is also a Medicare Savings Program but it is run through the state Medicaid program. And, same-sex married couples will not qualify in nonrecognition jurisdictions.

 

C. Medicaid

Medicaid is the health care program for low-income individuals and families. It is a cooperative program operated by the states and partially funded by the federal government. There are different rules for each state. The benefits are limited and based on income. States no longer have any legal reason to refuse coverage for all married same-sex couples.

The federal government permits states to recognize same-sex partners and spouse for Medicaid purposes.

 

D. Supplemental Security Income

Supplemental Security Income (SSI) is a program for the aged, blind, and disabled administered under the auspices of the SSA. The program provides a cash benefit to people who are at least 65 and meet financial guidelines or who are disabled. Program participants have very limited income and resources.

It is difficult for a married couple to qualify for SSI benefits. The financial restrictions are significant. A married couple must apply together if both are over 65 or meet the SSA disability standard. The limit on allowable income and resources is 50 percent higher for a couple than an individual.

If only one spouse meets the basic criteria for SSI, she may apply as an individual but the other spouse’s income and resources will be counted as available to the applicant. However, if the married couple is living separately, they will be treated as individuals.

Like SSA benefits, the Social Security Act10 controls the definition of “spouse” and “marriage.” State law defines a person’s marital status. And, the law in the applicant’s state of domicile is controlling. The law11 provides that even if there is no recognized marital relationship a couple will be recognized as married for SSI purposes if they hold themselves out as “husband and wife.”

This may allow married same-sex couples to qualify for SSI if their federal tax returns are submitted “married filing jointly.”

 

E. Transgender Issues and Federal Benefits

There is great confusion about transgender issues. Most of the confusion arises because people do not have any background or understanding of this area of medicine or law.

In June 2014, the American Medical Association (AMA) issued a report, Conforming Birth Certificate Policies to Current Medical Standards for Transgender Patients. The AMA recommends that it eliminate any requirements that individuals undergo gender affirmation surgery in order to change their sex designation on birth certificates. The report also supports modernizing state vital statistics statutes to “ensure accurate gender markers on birth certificates.”12

An understanding of the terms involved is a good place to start:

  • Transgender is a state of gender identity. A person’s gender identity is different from his or her gender that was assigned at birth. The official designation in the Diagnostic and Statistical Manual of Mental Disorders 5 (DSM-5) is “Gender Dysphoria.” This is a change from “Gender Identity Disorder.”     
  • Transsexual refers to an individual who has medically changed his or her gender to the correct gender identity. The medical procedure is gender reassignment surgery. Not every transgender person wants or can afford GRS 
  • A “trans man” is a female to male transgender person.
  • A “trans female” is a male to female transgender person.

One goal is to obtain a new birth certificate with the corrected gender marker. This option is not available in Idaho and Ohio. Most states have not recognized marriages in which one party is transgender when the transition took place before the marriage. However, in a post-Obergefell world, that is no longer an issue. A transgender person can marry without any concern that the marriage will not be deemed valid. The date of transition has become irrelevant. The Obergefell decision provides necessary clarity for transgender spouses. There is caselaw13 that held marriages involving a transgender spouse were declared void ab initio. Some transgender spouses have also been denied Social Security surviving spouse benefits because the state of residence did not recognize the marriage. Those days are over. It no longer matters when a person transitions. The marriage is legal.

If representing a transgender client, drafting documents for the other party to sign that clearly sets forth the client’s gender identity is important. This remains an important practice point to avoid a future claim for fraud. Establishing that the non-transgender spouse is aware of the other’s gender identity will refute any future claims. Using the pronouns preferred by the client is especially important. It may also be necessary to refer to the client’s previous name. Explaining the reasons for doing so will help place the client ease.

Transgender clients can change their gender marker for Social Security purposes and get a new passport and driver’s license with the correct gender marker. However, if all the documents are not in order, traveling may be difficult, especially air travel.

Transgender seniors are a segment of the LGBT community that is often overlooked. Yet, they can be at great risk for mistreatment and injury. Preparing their estate plan requires a great deal of care and sensitivity.14

 

F. Fair Housing Act and Fair Nursing Home Reform Act

The Fair Housing Act (FHA)15 and Fair Nursing Home Reform Act (FNHRA)16 are two federal laws that offer protection to LGBT seniors. The FHA defines “family” to include LGBT family members. Lenders and owners of HUD-financed dwellings are prohibited from inquiring about sexual orientation.

The FNHRA prohibits denial of necessary care and treatment. This includes providing a transgender senior with hormone therapy. The FNHRA is not restricted to a specific class of people. It focuses on the residents’ health and welfare.

Under the FNHRA, an individual is not required to prove the underlying motivation for the discrimination. She only needs to prove the actions violate the statute. This is a strong statute to use in cases where abuse, neglect, and discrimination are present. The FNHRA spells out resident’s rights at 42 C.F.R. § 483.10.17

 

G. Free Application for Federal Student Aid

The Free Application for Federal Student Aid (FAFSA) is the unified application for federal aid: grants, loans, and work-study. Private and public institutions and some private financial aid providers use it. Financial aid is based on individual circumstances, household income, parental contributions, and “expected family contributions” (EFC). The dependent student’s EFC is based on the parents’ adjusted gross income plus the student’s income. A married student’s EFC is based on the student and spouse’s combined adjusted gross income.

When DOMA was in effect, applicants with same-sex parents were required to treat their parents as divorced and could list the income of only one parent. Applicants in a same-sex relationship were viewed as individuals and could not list their partner/spouse as a dependent because DOMA prevented recognition of the marriage.

All that changes with applications for the 2014–2015 school year. Following the Windsor decision, applicants with same-sex parents must list both parents. Same-sex spouses are now listed as part of the household. The Obergefell decision will not change this practice.

Applicants are required to list both parents and their income and potential contributions if they live together and are the student’s legal parents. This is the same rule for couples regardless of their sexual orientation.

Students whose parents live together but where only one is considered a “legal parent” are not required to list both parents. In states like Ohio where second-parent adoption is not readily allowed, married same-sex couples may be raising children but only one adult is considered a “legal parent.”

Both parents need not be named if they are in a civil union or domestic partnership unless both are recognized as legal parents.

The law of the state of domicile defines “legal parents.” This definition can include adoptive parents, those declared to be legal parents by court order, biological parents, and intended parents. Some states recognize “psychological” or “de facto” parents and those holding themselves out as “legal parents.” For families living in recognition jurisdictions, children of parents in civil unions and domestic partnerships are “legal parents” because state law treats them as such.

Same-sex married couples are now recognized for FAFSA purposes. Those couples in civil unions or domestic partnerships do not list the partner on the application form. The federal government does not recognize those relationships for FAFSA purposes.

These changes in the application process are an important development and may affect the amount of aid available.

 

H. Federal Employees

The Windsor decision resulted in numerous actions that benefited married same-sex couples where one was a federal employee. The Windsor decision required federal agencies to recognize the marriages of same-sex couples.

On June 28, 2013, the federal Office of Personnel Management (OPM) issued a memorandum, Guidance on the Extension of Benefits to Married Gay and Lesbian Federal Employees, Annuitants, and Their Families.18

OPM also issued a Benefits Administration Letter19 on July 3, 2013, that describes coverage for same-sex spouses.

OPM was the first federal agency to issue such guidance—48 hours after the Supreme Court issued the Windsor decision. This memo addressed the extension of benefits to the spouses of lesbian and gay federal employees.

The Windsor decision gave the spouses of married gay and lesbian federal civilian employees the same benefits as spouses of heterosexual employees.

The marriage is considered a qualifying life event (QLE) following which an employee may change his insurance coverage and add the spouse to the policy. The changes must be submitted 31–60 days after the QLE.

The OPM website provides extension information on the benefits provided federal employees and the forms required to make any changes.

Federal Employee Health Benefits Program

Legally married same-sex spouses are eligible family members under the Self and Family enrollment. Starting in 2014 the federal government is offering a new type of plan for employees and spouses called Single plus One. This allows couples without children to pay less for their health insurance.

Initially, lesbian and gay federal employees had 60 days during which they could add their spouse and children. Now, employees can make changes during the regular open season. For those employees who enrolled their spouses during that 60-day period, coverage became effective with the pay period immediately following enrollment. Spouses may also enroll in the federal dental and vision insurance program and the long-term-care insurance program.

The spouse will continue to be eligible for health plan benefits after the employee spouse retires if she meets the following requirements:

  1. The employee is entitled to retire on an immediate annuity from the federal retirement system for civilian employees, and
  2. The nonemployee spouse has been covered as a family member in any federal employee health benefits program for the five years immediately before the annuity start date, or for the full service period since the spouse’s first opportunity to enroll, if less than five years.

Generally, when the couple divorces, the former nonemployee spouse would lose eligibility. However, the former spouse may be eligible for coverage under “spouse equity” provisions. This is a fact-specific situation and it is best to check the OPM website for details.

Federal Employees’ Group Life Insurance Program

Federal employees are automatically enrolled in the basic insurance program. This provides a payout when the employee dies. Employees may purchase additional insurance. The employee may designate a beneficiary to the policy; the surviving spouse is the default beneficiary if none was designated.

Employees may purchase a policy to insure the spouse’s life through the Federal Employees’ Group Life Insurance program. This must be submitted within 60 days of the marriage. Following the Windsor decision, employees had 60 days to purchase this coverage. The only other time an employee can make changes is during an open season. These are not regularly scheduled by OPM.

Family Medical Leave Act for Federal Employees

Under the Family Medical Leave Act (FMLA), federal employees are entitled to 12 weeks of unpaid leave to care for a family member. This now includes same-sex spouses. The leave need not be taken all at once.

Employees caring for a military spouse who became injured or ill while on active duty receive 26 weeks of FMLA leave. FMLA leave is in addition to any other leave the employee may use. This includes up to 13 days of sick leave.

On returning to work the employee must be returned to the same or an equivalent position. There can be no change in benefits, pay grade, or conditions of employment. Employees are also entitled to maintain health insurance. Premium payments can be made during the leave or after the employee returns to work.

Employees are required to provide 30 days’ notice of their intent to take FMLA leave.

Federal Flexible Spending Accounts

Flexible spending accounts allow a federal employee to contribute pretax money into an account. The money can be used for family out-of-pocket health care expenses, including those for a spouse or beneficiary. Employees must make the election 31–60 days after the QLE (marriage, legal separation, divorce, or death of a spouse).

Retirement

Federal civilian retirees had until June 26, 2015, to notify OPM of their legal marriage and elect changes to their retirement benefits. Retirees may make changes to provide benefits for their surviving spouses. This decision requires consideration of what is best for the retiree and her spouse because such changes usually result in a reduction to the retiree’s monthly annuity.

Same-sex spouses of retiring federal employees are eligible for survivor annuities.

There are two types of federal retirement systems: Civil Service Retirement System (CSRS) and Federal Employee Retirement System (FERS). The latter replaced the CSRS system in 1986. Almost all current federal employees are covered by FERS.

Employees under the FERS retirement system receive benefits from three sources: a Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP). The TSP is comparable to a 401(k) plan and is portable.

The agency withholds contributions to the Basic Benefit Plan and Social Security from an employee’s pay each pay period. The government makes a matching payment under the TSP. Those contributions are tax deferred.

CSRS is a defined benefit, contributory retirement system. Employees share in the expense of their annuities. They generally pay no Social Security retirement, survivor, or disability taxes. They do pay into Medicare. The agency matches the employee’s CSRS contributions. This program covers employees employed before January 1, 1987.

Spousal Coverage

Spouses may receive a basic employee death benefit as a one-time lump sum payment. This is the basic employee death benefit. A surviving spouse can also receive an annuity as a monthly payment. The employee must elect to provide this surviving spouse annuity when he retires. The amount is based on a percentage of the employee’s retirement annuity.

The couple must be married for at least nine months in order for the surviving spouse to be eligible. The exception is if the death was an accident or if there is a child born of the marriage. This is comparable to the requirements under the Social Security Act.

Surviving former spouses may receive an annuity based on a court order, provided the marriage lasted at least nine months, the employee reelected the survivor annuity, and the divorce decree requires it.

If the employee failed to make a beneficiary designation, a lump sum reflecting the account balance will be made to a qualified survivor. The employee may designate someone to receive this lump sum. If no one is named, the surviving spouse has first priority.

OPM is preparing guidance for retirees on making changes that will allow them to provide for a surviving spouse. This is intended to apply only to same-sex marriages. Retirees must decide whether a change makes sense for them.

Federal civilian retirees who marry after they retire have two years from the date of the marriage to file an election involving a surviving spouse annuity. Surviving spouses, married when the employee retired, are entitled to an annuity unless they waived that right.

 

I. Federal Government Retirement Programs

Federal employees under FERS are entitled to participate in the TSP program, which is comparable to a 401(k) plan. At present, employees are able to contribute a maximum of 15 percent of their pretax income to the plan. The government provides a maximum match to 5 percent. Federal employees can designate their same-sex spouse as the beneficiary of the TSP account. The TSP account can be rolled over into an IRA in the same manner as a 401(k) when the federal employee leaves government service.

Under CSRS, employees do not pay Social Security taxes. Employees receive an annuity upon retirement. There is a dollar-for-dollar reduction from the annuity if the retiree is also eligible for Social Security payments. Employees enrolled in the CSRS program can also contribute to the TSP plan but their contributions are limited and there is no government contribution. The employee can name his partner as the beneficiary of the TSP proceeds. The number of active federal employees who are enrolled in CSRS is dwindling.

Same-sex domestic partners of federal employees are eligible to receive a survivor annuity under the federal employee retirement program. The final rule,20 Presumption of Insurable Interest in Same-Sex Domestic Partners, went into effect July 20, 2012. There appears to be no movement by the federal government to change this rule.

According to OPM, the term “same-sex domestic partner” means a person in a domestic partnership with an employee or annuitant of the same sex. The term “domestic partnership” is defined as a committed relationship between two adults, of the same sex, in which the partners:

  • Are each other’s sole domestic partner and intend to remain so indefinitely
  • Maintain a common residence, and intend to continue to do so or would maintain a common residence but for an assignment abroad or other employment-related, financial, or similar obstacle.
  • Are at least 18 years of age and mentally competent to consent to contract
  • Share responsibility for a significant measure of each other’s financial obligations
  • Are not married or joined in a civil union to anyone else
  • Are not the domestic partner of anyone else
  • Are not related in a way that, if they were of opposite sex, would prohibit legal marriage in the U.S. jurisdiction in which the domestic
  • Are willing to certify, if required by OPM, that they understand that willful falsification of any documentation required to establish that an individual is in a domestic partnership may lead to disciplinary action and the recovery of the cost of benefits received related to such falsification, as well as constitute a criminal violation under 18 U.S.C. 1001

This is a major development for federal employees. Until now, a retired federal employee’s retirement annuity stopped when the retiree died.

 

J. Federal Ethic/Conflict of Interest Rules

A federal agency’s ethics and conflict of interest rules cover both employees and their spouses. Covered employees are required to submit an annual report that discloses all potential conflicts. Spouses are also required to disclose sources of income to determine whether a potential conflict exists. Same-sex spouses will be required to make such disclosures starting in 2014.

 

K. Taxes

The Windsor decision simplified the tax situation for married same-sex couples, at least on the federal level.

The Internal Revenue Service recognizes same-sex marriages based on the state of celebration. All same-sex couples are required to file their federal taxes as “married filing jointly” or “married filing separately.” It is best to consult a certified public accountant or other knowledgeable tax preparer to determine which category is best for any specific couple.

Some couples will be surprised when they discover the “marriage penalty” applies to them—especially those couples that married as a “political statement” and never thought it “counted.”

A major concern involves those couples that married and then ended their relationship without obtaining a divorce. Some of them have entered into new relationships, including marriage, and have no idea that the earlier marriage remains valid.

There are myriad legal issues and problems created by the failure to formally end the preexisting marriage. No one knows how many of those situations exist. It is, therefore, incumbent upon a lawyer to ask all relevant questions about past relationships when working with same-sex couples or individuals. There may be a former marriage lurking in the background.

Some states legislated an “automatic upgrade” when they adopted marriage equality. Finding out where the couple married or entered into another formal relationship will be necessary, followed by researching that state’s law to see if there was an upgrade.

Unlike marriage, however, neither the IRS nor the federal government recognizes civil unions and domestic partnerships. Neither the Windsor nor the Obergefell decisions confer any federal benefits on couples in either type of relationship. However, these are legally recognized relationships and must be properly dissolved. There is growing evidence that many lesbian and gay couples are skipping the “dissolution” step. Clients may have entered into a marriage with a new partner without dissolving an earlier civil union or domestic partnership.

Caveat: The IRS chief counsel in Illinois issued a letter stating that a heterosexual couple in an Illinois civil union could file a “married filing jointly” tax return because Illinois law recognizes those in a civil union as “husband and wife.” There is no indication that other IRS attorneys have taken a similar stance.

All provisions of the Internal Revenue Code that apply to married couples apply to same-sex married couples. This includes the “marriage penalty.” Some married same-sex couples may find they are required to pay additional taxes because they are married. On the other hand, some couples may find they are paying less in taxes than they would if filing as “single.”

The provisions include the unlimited marital deduction and no gift tax for transfers between spouses and IRA transfers between spouses. All other benefits for married couples will apply to married same-sex couples beginning in 2013 and before if the couple files amended tax returns.

Portability

The American Taxpayer Relief Tax Act of 2012 contains a provision that can be important for married same-sex couples.

Widows and widowers are allowed to carry over the deceased spouse’s estate tax exemption and add it to their own. This means a surviving spouse will have an estate tax exemption of $10.68 million rather than $5.34 million (as of 2014).

There are specific requirements that must be met. The executor must file an estate tax return within nine months of the death—even if no estate tax is owed. The six-month extension provision is allowed. Many attorneys and executors failed to make this election primarily because they thought there was no chance the surviving spouse would ever need the extra $5.34 million.

The Revenue Procedure requires the following at the top of the form: FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER §2010(C)(5)(A) (the IRS requires all caps).

The extension applies only if the sole reason for filing Form 706 is to carry over the “deceased spousal unused exclusion” amount. The Revenue Procedure includes instructions for claiming a credit or refund for overpayments. The statute of limitations is three years from the date the executor filed Form 706 or two years from the date of payment, whichever is later.

This can be of significant benefit to surviving same-sex spouses. However, determining whether the portability election is available depends on the citizenship of the decedent spouse. The portability election is not available to a noncitizen decedent spouse unless provided for by treaty. The United States has 15 estate tax treaties and seven of them contain language addressing a decedent’s unified credit. These issues are complicated. When in doubt, enlist the services of an experienced tax planner.

States with Estate and/or Inheritance Taxes

Fifteen states21 and the District of Columbia have an estate tax. Six states have an inheritance tax. Maryland and New Jersey have both. Eight of these states are making changes by increasing the exemption amount, indexing it for inflation, or eliminating the tax on the estate’s first dollar.

Maryland will increase the exemption amount in annual increments until it matches the anticipated federal exemption amount of $5.9 million in 2019. Maryland, however, will continue to have an inheritance tax for those who are not spouses, children, parents, or siblings.

New York has implemented significant changes by doubling its exemption amount. Like Maryland, the New York exemption amount will rise gradually through 2019 until it matches the federal exemption. Unlike Maryland, however, New York taxes the entire estate if it exceeds the exemption amount. This is known as a “cliff” provision. In New York, a taxable estate of $2,062,500 would pay no tax but if the estate is $2.1 million, the tax levied is $49,308—more than the overall increase in the actual estate.

Minnesota, Rhode Island, and Tennessee are also increasing their exemption amounts. The Tennessee estate tax will disappear on January 1, 2016.

New Jersey has the lowest exemption amount—$675,000. This can create a significant estate tax and inheritance tax issue for unsuspecting clients.

Portability and State Exemption Amounts

Some states have exemptions that are less than the federal one. It is important to “mind the gap” in those situations. The federal portability issue, where the decedent spouse can pass on the unused exemption amount to the surviving spouse, can create an issue because it is not always available on the state level. Delaware and Hawaii are the only states that allow portability of state exemption amounts. Hawaii’s law22 applies only to deaths occurring after January 25, 2012, and only if a state estate tax return was filed.

Maryland’s estate tax exemption will be portable as of January 2019. Several other states have introduced legislation to allow portability of state exemption amounts but all the bills died in the state legislature. The state exemption amounts can mean it is important for both spouses to take the full exemption rather than take advantage of the portability provision in the Internal Revenue Code. Using portability may cause the surviving spouse to fall off the cliff and trigger state tax liability. An estate plan that takes advantage of the state exemption on the death of the first spouse may permit both estates to fall below the required amount. The savings to the surviving spouse could be significant.

The irony is that most of the states with estate and inheritance taxes are marriage equality states. Married same-sex couples can be directly affected by these tax policies. Since the entire estate can be affected, clients with large 401(k) accounts, an expensive car, and a house can be affected.

When preparing an estate plan, collaborating with an experienced financial planner can help clients living in these states to avoid a postmortem surprise.

Recouping Taxes Paid on Employer-Provided Health Insurance

When employers offered domestic partnership benefits for same-sex employees and their partners, the value of those benefits was taxable to the employee. The employee should be able to recoup those payments and should contact their employer to determine the best way to accomplish the task.

Many employers and employees may overlook this situation but the amounts in question can be significant. Consulting with a knowledgeable CPA or other tax professional will be helpful.

 

L. Immigration

Immigration law is a complex and specialized area of law. Lawyers that do not practice in the area should enlist the assistance of an experienced immigration lawyer. Mistakes can be costly to a client.

Following Windsor, a U.S. citizen can sponsor his same-sex spouse for permanent residency. These couples must meet the general criteria for marriage-based immigration.

This became very clear within minutes of the release of the decision. A clerk with the DOMA Project in New York sprinted several blocks with the printed decision and arrived at an immigration hearing in time to stop a deportation proceeding. After being handed the decision, the immigration judge dismissed the case.23

The U.S. Citizenship and Immigration Service (USCIS) uses the state of celebration to determine whether a marriage is valid. The couple’s state of residence is immaterial.

There is no guidance concerning same-sex couples in civil unions or domestic partnerships. There may come a time when those relationships are considered in the same way as marriages. Foreign-born spouses in same-sex marriages, in the United States on a nonimmigrant visa, are eligible to be sponsored by their spouse for a green card.

Likewise, a person who entered the United States legally but overstayed her visa may also file for a green card. However, any non-U.S. citizen who entered the country illegally cannot be sponsored. There are some exceptions. Same-sex couples may also seek a fiancée visa when the non-U.S. citizen partner lives outside the United States. This allows a nonresident foreign- born spouse to enter the United States. The visa is valid for 90 days. The visa requires evidence to substantiate the intent to be married. Once married, the couple can file a marriage-based petition.

Some married same-sex couples left the United States because the foreign national spouse would not be recognized. In order to seek file a marriage-based petition, the U.S. citizen spouse must reside, or provide proof of intention to reside, in the United States. The petition cannot be filed unless the couple intends to reside in the United States.

Lawful permanent residents of the United States (those with a green card) can sponsor their spouse for permanent residency. The spouse who is currently a permanent resident would file an application for an immigrant visa (I-130). There is a two-year wait before the spouse could file for permanent residence. However, if the current resident becomes a citizen, the marriage-based petition can be filed immediately.

Permanent residents can file for citizenship after years. Spouses of U.S. citizens can file three years after receiving their green card. Once a stepparent/stepchild relationship has formed, a U.S. citizen can sponsor her foreign national’s children for permanent residency. The immigration ban on persons with HIV/AIDS ended in January 2010.

 

 

Notes

1. Memorandum from GAO Office of the Gen. Counsel to House Rep. Henry J. Hyde, Defense of Marriage Act, GAO/OGC-97-16 (Jan. 31, 1997), http://www.gao.gov/assets/230/223674.pdf.

2. Memorandum from GAO Office of the Gen. Counsel to Sen. Bill Frist, Defense of Marriage Act: Update to Prior Report (Jan. 23, 2004), http://www.gao.gov/new.items/d04353r.pdf.

3. 570 U.S. 12 (2013).

4. 28 U.S.C. § 1738C; 1 U.S.C. § 7.

5. http://www.ssa.gov.

6. SSA POMS GN 00210.100.

7. Same-Sex Marriage—Eligibility for Medicare Special Enrollment Period (SEP), GN 00210.700 (Apr. 2014), https://secure.ssa.gov/poms.nsf/lnx/0200210700.

8. Same-Sex Marriage—Premium Surcharge Rollback, GN 00210.701 (Apr. 2014), https://secure.ssa.gov/poms.nsf/lnx/0200210701.

9. Soc. Sec. Admin., Program Operations Manual Systems § HI 00830.001, Granting Equitable Relief. 11. Soc. Sec. Admin., Program Operations Manual Systems § HI 00830.001, Granting Equitable Relief.

10. 42 U.S.C. § 1382c(d).

11. 42 U.S.C. § 1382c(d)(2).

12. Am. Med. Assoc., Bd. of Trs., Board of Trustees Report 26-A-14 (June 2014).

13. Littleton v. Prange, 9 S.W.3d 223 (Tex. App. 1999), cert. denied, 531 U.S. 872 (2000); In re Estate of Gardiner, 2002 WL 397677 (Kan. 2002).

14. Excellent resources on transgender issues include Transgender Law Center, http:// transgenderlawcenter.org; Transgender Law & Policy Institute http://www.transgenderlaw.org/; and Trans-family, http://www.transfamily.org/. See also Gay & Lesbian Advocates & Defenders, Transgender Legal Issues (2015), glad.org/uploads/docs/publications/trans-legal-issues.pdf (concentrates on New England, but can be a helpful resource for attorneys in every state); Gay & Lesbian Advocates & Defenders, Transgender Family Law: A Guide To Effective Advocacy (Jennifer L. Levi ed., 2012) (addresses all aspects of transgender family issues, including estate planning). Levi is director of GLAD’s Transgender Rights Project.

15. 42 U.S.C. §§ 3601–3619.

16. 42 U.S.C. § 1396r, 42 U.S.C. § 1395i-3, 42 C.F.R. § 483.

17. Additional information is available from Nat’l Res. Ctr. on LGBT Aging, Fair Housing Federal Law: A Fact Sheet for LGBT Older Adults, http://www.lgbtagingcenter.org/resources/print.cfm?r=400 (last visited June 2014).

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

19. http://www.doiglobe.org/wp-content/uploads/2013/07/BAL-13-203-Coverage-for-Same-Sex- Spouses.pdf.

20. 79 Fed. Reg. 42,909 (to be codified at 5 C.F.R. §§ 831, 842), https://www.federalregister.gov /articles/2012/07/20/2012-17542/presumption-of-insurable-interest-for-same-sex-domestic-partners.

21. Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington. Tennessee repeals its estate tax effective Jan. 1, 2016.

22. Haw. Rev. Stat. § 236D; Instructions for Form M-6 Hawaii Estate Tax Return (2013).

23. Immigration Equality, http://www.immigrationequality.org, is an excellent resource for information on immigration issues affecting same-sex married couples, LGBT individuals, and unmarried couples.

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Joan M. Burda

Joan M. Burda is in solo practice in Lakewood, Ohio. She limits her practice to estate planning, probate, and family law. Joan teaches Sexual Orientation and the Law at Case Western Reserve University School of Law where she is an Adjunct Professor of Law. Since 2002 she has taught Civil Procedure, Contracts, and Administrative Law in the Legal Studies Program at Ursuline College. Joan received a Bachelor of Liberal Studies degree from Bowling Green State University. She received her J.D. from Pepperdine University School of Law in Malibu, California. When this book was first published in 2005 the Independent Publishers Association selected it for a Benjamin Franklin Award. In addition to this book, Joan is also the author of Representing Gay, Lesbian, and Transgender Clients: A Lawyer’s Guide (ABA 2007) and An Overview of Federal Consumer Law (ABA 1998). She also writes for various ABA publications as well as national print and online media. Joan is active in the American Bar Association and the National Lesbian and Gay Bar Association. She is a referral lawyer for the National Center for Lesbian Rights and the Lambda Legal Defense and Education Fund. Joan speaks on LGBT issues at national and international conferences and CLE events. She is a presenter at the annual Family Law Institute and Lavender Law Conference sponsored by the National Lesbian and Gay Bar Association. Joan lives in Lakewood, Ohio, with her spouse, Betsy. Joan and Betsy were married in Middlebury, Vermont, in September 2010 on the 20th anniversary of their relationship. That way they did not need to remember another date.