Knock Knock!
Who’s There?
One More.
One More What?
One more distraction for the
2016 presidential election.
It’s unfortunate, but that’s what this is going to become. On June 26 the Supreme Court’s landmark ruling recognizing same sex marriage nationwide is going to become what will surely be interesting campaign fodder. From a personal standpoint, I will do my usual and stand neutral with regard to my political views on this and other hotly debated subjects. I learned a long time ago that politics and religion are best left off the table.
So here it is: The United States became the 23rd nation to recognize same sex marriages. Here is a list of those countries, in chronological order:
Netherlands, 2001; Belgium, 2003; Canada and Spain, 2005; South Africa, 2006; Norway and Sweden, 2009; Portugal, Argentina, and Iceland, 2010; Denmark, 2012; Brazil, England, France, New Zealand and Uruguay, 2013; Luxembourg and Scotland, 2014; and Finland, Slovenia, Republic of Ireland, Mexico and the United States, 2015.
For us, as financial advisors, what does this all mean? If we place politics aside, where are the business opportunities here? This is certainly not a new opportunity but one that is virtually untapped in terms of financial planning matters. With this recent ruling, the subject is more timely than ever.
At the beginning of June I attended the NAIFA New Jersey Summit, and one of the speakers was an attorney whose entire talk was about how to facilitate legal and insurance planning within the same sex community. His talk was state focused, but now the rules will apply in every state in the union. Funny how a few weeks make such a difference in our industry. Sales opportunities are always presenting themselves to us, and this is certainly no different.
So where are the opportunities? How do we hit the ground running and start addressing the unique needs of this new marketplace? Same sex couples will now enjoy the less complicated approach to planning. Prior to this decision they had to endure many extra steps in the planning process and still were not able to fully execute the same level of planning solutions afforded to “traditional” married couples. Here’s a snapshot of the significant areas of change:
• Social Security Benefits: By the spousal recognition, it will be easier to access Social Security benefits that had previously not been available to same sex couples.
Planning Opportunity: Clients always want to understand their Social Security benefits. This will be even more confusing now, and it transitions into the retirement income conversation. Surely there will be a need to discuss supplemental planning.
• Health Insurance: Same sex married couples will now be able to access spousal benefits for major medical and other employee benefits.
Planning Opportunity: This will free up cash flow for clients who were not previously eligible for group pricing for family coverages. As cash is freed up, it opens the door to a number of ancillary products that you can provide.
• Income Tax Planning Options: Same sex married couples will now be able to choose their filing status. In the past, filing separate returns was the only option. But now, if it makes sense, there will be a married, filing jointly option. Keep in mind that if both spouses are high earners, they may be subject to the marriage penalty that may account for a higher tax bracket. But ultimately there are now choices, and the pros will outweigh the cons.
Planning Opportunity: Once again there should be an ease on cash flow due to the filing options, and this will free up discretionary cash for ancillary sales. Another point to consider is that adoption is very common, and there may be tax credits available for couples that take this road, whereby freeing up additional cash.
• Estate Planning: By normalizing marriage laws across all 50 states, the most significant change will be the inclusion of the unlimited marital deduction. Now, after the death of one spouse, all of their assets will pass tax-free to the surviving spouse. This was the largest single financial win for this ruling. Prior to the ruling, assets could not pass tax-free to the surviving partner. Essentially, estate taxes were due, and all affairs would have to be settled in short order. It will be much easier to help a same sex couple plan with the use of second-to-die contracts and smoothly facilitate wealth transfer without the need to jump through hoops via elaborate, overly complicated and expensive planning methods.
Planning Opportunity: Approach estate attorneys and CPAs to assist them with the implementation of life insurance planning. By the way, don’t assume that these professionals are aware that same sex second-to-die policies are available, and in most cases one spouse can even be uninsurable.
• State Specific Estate Planning: For states like New Jersey, New York and Connecticut that have their own estate tax, the current ruling is more impactful. The unlimited marital deduction is now going to extend to the individual state of residence. Basically, there will be no state estate or inheritance tax due upon the death of a married resident for the surviving spouse. New Jersey, for example, has a threshold of only $675,000. Anything above that would trigger the tax for a “non-recognized” partner for amounts above the $675,000 threshold.
Planning Opportunity: Same as estate planning previously mentioned, but the federal exemption limit is $5,340,000, which would apply to higher net worth clients. The individual state estate taxes, like New Jersey, have a much lower threshold, which will apply to a wider audience.
As you can see, there are a number of planning alternatives that have been created by the recent Supreme Court ruling. In addition to what was mentioned above, there are a number of business planning applications that can be brought to the forefront. I’m sure that in the coming months, as this unfolds, there will be confusion and questions as to how this will work in the long run. But one thing is for certain, we were all made busier by this recent decision. There are many attorneys and CPAs that have clients who are affected by this. There are also a number of local LGBT organizations that will need your services. Becoming well versed in this topic will surely open up doors leading to new revenue sources and marketing opportunities.
