The Supreme Court ruling legalizing marriage in all states for same-sexcouples is a landmark decision in the equal rightsarena. However, the ruling also has important financial and taximplications—implications that same-sex clients now need to beadvised upon in order to avoid any planning surprises down theroad.

While the ruling eliminates the patchwork of state-specific rules that couldconfuse even the most competent financial advisor, it is criticalthat advisors in all states familiarize themselves with theimportant planning issues that same-sex couples now need toconsider — whether or not they have chosen to marry.

Read: Sponsors welcome clarity in same-sex marriageruling

Some of the issues are fairly simple and well-settled, but thesubtleties and complexities of the rules need to be considered inorder for same-sex married couples to make informed planningdecisions going forward.

Read: SCOTUS decision means boon in Social Securityfor same-sex couples

Estate and gift tax issues

While same-sex spouses now have the same rights as opposite-sexspouses to inherit from one another even in the absence of a will, federal estate tax rules have evolvedin recent years to make it easier for married couples to avoidtransfer taxes when passing wealth after death. Same-sex clientsare now able to take advantage of these special rules.

For example, the $5.43 million (in 2015) exemption is portablebetween spouses if an election is made on a properly-filed estatetax return — meaning that same-sex couples can now count onshielding a combined $10.86 million from estate taxes withoutworrying about which spouse technically owns the assets.

Read: Tax changes for 2015: What to expect

Same-sex married couples should be advised to review theirestate planning documents to take into account the fact that thesetaxpayers are now entitled to both the portability election and themarital deduction.

Similarly, in the gift tax arena, married couples are permittedto pool their $14,000 (in 2015) annual gift tax exclusion so thateach couple is able to make annual tax-free gifts of up to $28,000per donee.

Income tax

Married same-sex couples in all states will now have the rightto file both joint federal and state income tax returns, rather than two separate returns, for the2016 tax year, as well as for all other open years. For couples whohad filed separate federal returns for simplicity because theylived in a state that did not recognize same-sex marriage, amendinga past year’s return could lead to higher returns in somecases.

For other same-sex couples, however, choosing to marry and filea joint return can actually increase tax liability. In the past,same-sex couples generally had the opportunity to file two single(or two head-of-household) tax returns without worrying about the“marriage penalty” for filing separately thatapplies to a legally married couple.

As a result of the Supreme Court’s ruling, same-sex couples nowmust make the same cost-benefit analysis that applies toopposite-sex couples in determining whether to file jointly. Asingle taxpayer crosses the earnings threshold into the 39.6percent tax bracket when he or she earns more than $400,000 for theyear — meaning that two single taxpayers could live together andearn almost $800,000 before entering the highest tax bracket. Twomarried people, on the other hand, become subject to this rate whenthey have combined earnings of only $450,000 for theyear.

Similarly, if a couple is not married, they can earn $400,000($200,000 each) before their itemized deductions and personalexemptions become subject to the phaseout rules that graduallyreduce their value. Once that same couple is married, the penaltieskick in at $250,000 — total.

The investment income tax will also apply to amarried couple earning a combined $250,000 (while two unmarriedtaxpayers could earn $400,000 before crossing thethreshold).

Social Security

Same-sex couples who marry may find that a greater portion oftheir Social Security benefits may be subject totaxation, as the couple’s combined income could cause them to passthe thresholds that apply in determining whether (and to whatextent) these benefits are taxable.

However, same-sex couples may now take advantage of SocialSecurity spousal benefits. A married spouse who never worked (orwho isn’t ready to begin claiming benefits) is still entitled toclaim Social Security spousal benefits when his or her spouse usesthe “file and suspend” strategy. Under thisstrategy, one spouse files for benefits and immediately suspendsthose benefits after the second spouse begins claiming spousalbenefits.

This allows the couple to claim some Social Security benefitswhile allowing their earnings-based retirement benefits togrow.

Retirement accounts

Same-sex married couples are now entitled to the same spousalbenefits as have always applied to opposite-sex spouses. Forexample, a surviving spouse is entitled to roll over IRA funds that are inherited from a deceasedspouse into his or her own account, delaying required minimumdistributions (and the associated tax liability) until thesurviving spouse reaches age 70 ½. A non-spousal beneficiary, onthe other hand, is not entitled to delay distributions and musttake distributions over his or her life expectancy (or a five-yearperiod, whichever method is elected).

Further, pension plans are required to provide qualified jointand survivor annuities as the typical form of retirement benefitfor married participants unless both the employee and the spouseconsent to waive this requirement.

If the retirement plan is covered by ERISA, the participant’sspouse may automatically be the beneficiary, which means that if asame-sex married spouse wishes for the benefits to be transferredto a non-spousal beneficiary (such as a child) upon his or herdeath, he or she must now affirmatively make the election.

If a plan participant is married and wishes to take out a loanfrom his or her retirement plan, the participant’s spouse mustgenerally consent. Further, plans must comply with qualifieddomestic relations orders (QDROs), which are often used to divideretirement plan assets in a divorce proceeding. Same-sex spouses are nowentitled to all of these rights under various retirement plans.

Life insurance

If a same-sex couple purchased individual life insurance policiesdesigned to provide a surviving spouse with liquidity upon thedeath of a first-to-die spouse in order to pay estate taxes, thecouple may wish to revise this plan in light of the portability andmarital deduction options discussed above.

A survivorship policy, which pays benefits upon the death of thesecond spouse and may be less expensive, may be more appropriate ifthe goal of the married couple is to provide benefits to childrenor other heirs upon the death of the second spouse.

Health insurance

Health insurance plans will now likely be required to offercoverage to same-sex spouses on the same basis as it is offered toopposite-sex spouses. While the issue has not yet been fullysettled, it is likely that employers who offer health coverage toan employee’s spouse will simply offer that coverage to all spousesin the future — it simplifies administration of the plans and alsoavoids any discrimination lawsuits that could result if theemployer limited coverage to opposite-sex spouses.

Importantly, same-sex spouses will now unquestionably be treatedas family, so that if one spouse requires hospitalization, theother will have access to medical information regarding thehospitalized spouse’s condition, as well as to visitation rights —without having to worry about whether the specific state recognizestheir marriage.

However, one consequence of this development is that manyemployers who currently offer domestic partner benefits couldchoose to eliminate those options. While employers can clearlycontinue to offer domestic partner benefits, it is worth notingthat in the wake of the Supreme Court’s Windsor decision, severallarge companies have already chosen to eliminate these benefits instates where same-sex marriage was legal (though most have provideda grace period time frame for the couples to marry or find otheroptions).

Conclusion

The Supreme Court ruling has legalized same-sex marriagethroughout the country, but that is by no means the end of theanalysis — same-sex couples must be advised upon the financial andtax issues (both positive and negative) that legal marriage createsin order to avoid surprises down the road.

Robert Bloink and William H. Byrnes are the authorsof 2015 Tax Facts on Individuals andSmall Business, which focuses exclusively on whatindividuals and small businesses need to know to maximizeopportunities under today's often-complex tax rules. It is theessential tax reference for financial planners and insuranceprofessionals.

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