The Effects of Same Sex Marriage on Estate Planning

Last year, the ban on same sex marriages in Pennsylvania was lifted with the U.S. District Court's decision in Whitehead v. Wolf. Just recently in June, 2015, the United States Supreme Court lifted this ban for the rest of the nation in its 5-4 decision in Obergefell v. Hodges.

So, what does this mean for same sex married couples when they are looking to complete their estate planning, and how is this different than before the law changed?

Pennsylvania Inheritance Tax:

Before the law changed, same sex couples in Pennsylvania were negatively affected by Pennsylvania Inheritance Tax. The rate of inheritance tax is dependent upon the person's relationship to the decedent. The inheritance tax rate for lineal decedents, (e.g., parents and children) is 4.5%; for siblings it is 12%; and for anyone else it's 15%. Spouses and charities are taxed at a rate of 0%. Therefore, before the change in the law, if one's partner died and the survivor of them inherited from the deceased partner, that partner's inheritance would be subject to a 15% tax rate. Since same sex marriages are now recognized, that rate drops to 0%, resulting in significant tax savings. For example, prior to the change in the law, a same sex partner who stood to inherit $200,000 from his or her partner would have to pay $30,000 in inheritance tax. Since the change in the law, the beneficiary would pay no inheritance tax.

Pennsylvania Intestacy Law, Elective Share, and Family Exemption:

If one dies without a will in Pennsylvania, the laws of intestacy dictate what happens to the decedent's estate. In the case of a same sex couple, if one partner predeceased the other and died without a will, the surviving partner would not have any right to inherit from the estate. Now, if a same sex couple marries, and one of the spouses dies without a will, the surviving spouse will have a right to inherit from the deceased spouse's estate. The laws of intestacy in provide that if a person dies without a will and has a surviving spouse with surviving children from that spouse only, then the surviving spouse is entitled to the first $30,000.00 plus one half of the estate. If one dies with a surviving spouse and surviving children with anyone other than the surviving spouse, then the surviving spouse would be entitled to one-half of the estate, and the children would be entitled to the other half. If one dies without a will and has a surviving spouse, but no children and has surviving parents, then the surviving spouse is entitled to the first $30,000.00 plus one half of the estate. If one dies without a will, and has a surviving spouse with no surviving children or parents, then the surviving spouse is entitled to the entire estate.

In addition to having rights under the laws of intestacy, same sex spouses now share the same protection under the Probates, Estates, and Fiduciaries Code that opposite sex couples are afforded in that they can avail themselves of a spousal elective share and the family exemption. Under Pennsylvania, if a person dies with a will, and attempts to disinherit his or her spouse in the will, the surviving spouse can elect against certain assets of the deceased spouse. The surviving spouse would be entitled to a 1/3 share of those assets. In addition, same sex spouses can opt for the family exemption, which provides a $3,500.00 exemption in the decedent spouse's estate that would be paid before certain creditors of the deceased spouse's estate.

Titling of Property:

In Pennsylvania, married persons are given preferential treatment when it comes to ownership of real property. A married couple can own property as tenants by the entirety, which provides extra liability protection that is not found with other forms of ownership of real estate. If one spouse has creditors, the real estate is protected from the creditors of that spouse; however, if both spouses are responsible for the debt, then the real estate is not protected. In addition, there is an automatic right of survivorship and no inheritance tax would be owed. Previously, before the ban on same sex marriages, same sex couples had two options when it came to owning real estate. They could own it as tenants in common or as joint tenants with right of survivorship. If one owns property with another as tenants in common and one of the owners dies, the ownership interest of the deceased person passes through that person's estate. There is no automatic right of survivorship, and it would be subjected to a 15% inheritance tax. If one owns property with another person as joint tenants with a right of survivorship, then the property would automatically pass to the surviving owner; however, the deceased owner's interest would still be taxed at 15% in inheritance taxes.

Individuals with High Net Worth and Tax Planning:

Same sex married persons can now do the same estate tax planning as opposite sex couples. The marital deduction can be used to avoid any federal estate taxes at the death of the first spouse and the surviving spouse can preserve the unused federal estate tax exemption of the deceased spouse. For 2015, the exemption is $5,430,000.00 per person, or $10,860,000.00 for a married couple. The top Federal Estate Tax rate is 40%.

Durable Power of Attorneys and Health Care Power of Attorneys:

Previously, in the absence of a health care power of attorney or some other document appointing a health care surrogate, same sex couples did not have statutory right to make health care decisions for each other. Under the new law, they now have the power to make health decisions for each other if there are no documents in place that appoint anyone to make those decisions.

Keep in mind, however, it is still important to have a durable power of attorney in place, as there is no statutory authority for one spouse to act on behalf of the other spouse in other matters without having a properly drafted and executed durable power of attorney.

In any matters involving estate planning, the services of trained legal counsel are highly recommended so that fully informed decisions can be made.