Taxed To Death
Legislators from Connecticut passed a bill in 2005 which created civil unions - legal arrangements that provide some of the same benefits and responsibilities as marriage.
However, the state cannot provide the same federal benefits of marriage due to the Defense of Marriage Act (DOMA) which says no state need recognize a marriage between persons of the same sex, even if the marriage is recognized in another state. The Federal Government may not recognize same-sex marriages for any purpose either.
Tax and estate lawyers in the state are recognizing that their expertise is being challenged by gay unions because of the differences between state and federal law. For example, if one partner dies and leaves the estate and money to a domestic partner, Connecticut will not tax the gift - but the federal government will apply a 45 percent tax on the estate before the other partner receives it. (source)
Gawd!!! A 45% tax on our estate! I knew that because we are unable to get married that there would be an estate tax for the surviving spouse. I had accepted that. But 45%!? I mean, WTF!!!!!!
Hell, I don't even know what to say about that. It kind of makes you think, why try to build an estate? Part of growing older is finding security in the fact that, if you've planned well for your later years, that the reward for all that planning and saving will be that you will have a nice estate to retire on. And, when a partner dies, that can be passed on to them. But with this, right off the top, the Federal Government will apply a 45% tax on the estate. And for those married couples that the Federal Government does recognize, the estate tax is... 0.
It's the same way for gay couples who are married in Massachusetts. They are legally married in the state, but the Federal Government will not recognize them. Maybe with a new Congress... a new President... things will change. I guess that's what I have to put my hope in. I know a lot of people don't care for gay people, but it seems to me that even reasonable people would see this as being extremely unfair.
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Hi Bill,
Relative to the fed estate tax, there are exclusions that apply to the gross value of the estate. For instance, right now, the first $2MM is excluded from taxation. Anything above that is taxed at a rate commenserate with the remaining value. Yes, not fair to couples not recognized by the federal gov't. But better than nothing at all I guess.
The other thing is this: Bush signed a law into effect that changes whether retirement plans are taxed or not to a surviving domestic partner, civil union or married same-sex couple. It was signed into law late last year.
Basically, if your company-sponsored plan allows, any benefits payable to a recognized partner or spouse can be passed tax-free to the surviving partner. Again, your company-plan must allow for that.
This change in retirement law was specifically inserted to address the inequity of same-sex partners in CUs or married in MA.
Yes, there is still much to be done in this area of parity, but for me, this little tidbit was a start.
Hope all is well with you and Kent. Jeff sends his regards!
Matthew
Well, I do have a life insurance policy. It's just that I didn't intend for it to go to the federal government to pay for my estate tax to my partner.
Excuse me now while I go throw up.
Hey Bill! How's things going? CRAZY here!
Please don't shoot the messenger, but.... I've heard some estate planning guys suggest that you might want to carry enough life insurance to pay the estate taxes for your spouse. I know that's not the same as marriage, but that is a technique they sometimes recommend for a surviving parent to cover the taxes on an estate that would be passed to children.
I think life insurance goes to the receipient tax-free (? PLEASE !!!! check your sources on this -- Like you, I'm a computer guy/DBA and NOT in financial consulting or estate planning!). If so, then that would be a way to get cash to Kent (or vise-versa) to cover estimated estate taxes. If he were the beneficiary on the life insurance policy, then the money would go directly to him and not to the estate.
Thus, the other spouse would have a cash influx to handle the estate taxes without having to sell off anything in the estate (houses, etc) that they wish to keep.
In theory you might could keep a CD or something as a "pay on death" (to keep it out of the estate) to the other person. The understood agreement would be that both of those CDs would be cashed to handle estate taxes. This way, you'd only have to have 1/2 of the estate tax amount in each of two CDs -- one held by you with POD to Kent and one held by Kent with POD to you. One would be alive to cash their CD and the other would be pay-on-death to the spouse. (But, the POD might also trigger taxes???)
Of course, state taxes differ from federal taxes, so please consult people that know what's happening in your state!!
Hi Bill
I just had my first invitation to a UK civil partnership a few weeks ago; the ceremony will take place in the local Registry Office (i.e. the same place that legalises civil marriages) in mid-November and will confer more or less the same rights and obligations as a heterosexual marriage. The two involved have been together for (I think) in excess of 50 years and one of the two recently had his 80th birthday and the other is about 70. Probably there are other supplementary reasons for them deciding to 'tie the knot', but I imagine the likelihood that one will die before the other is a contributory factor, to allow the surviving partner to pass on his share of the house and other assets to the surviving partner without any tax penalty, just as happens with married couples.
The laws in the UK are now so good (not perfect) that a lesbian who tried to contract a civil partnership without having a previous civil partnership dissolved legally was gaoled for bigamy and I believe there was a case where a gay person married without also having had a previous civil partnership dissolved was also convicted of bigamy - effectively the law now sees both 'marriages' and 'civil partnerships' as one and the same in legal terms.
It seems really grotesque that the efforts of one US State to have a minimum level of decency and fairness in how it treats same-sex couples is being being so blatantly undermined by US Federal tax laws driven by bigotry.