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Estate taxes on gays and lesbians

The only things certain in life are death and taxes and according to a new study released by the University of California in Los Angeles, same-sex couples are assured to pay more in federal estate taxes upon death than their heterosexual counterparts.

The study titled ‘Federal Estate Tax Disadvantages For Same-Sex Couples’ showed that in 2009, 73 same-sex couples each will pay about $3.3 million more in estate taxes than heterosexual couples. The estate tax is a tax that is put on a person’s cash, stock, businesses and physical possessions when they die. If the estate is passed on to a legally married spouse, the tax does not apply. Heterosexual couples can pass an unlimited amount of assets to a spouse upon death. Since same-sex marriages are currently not recognized on a federal level than a same-sex couple is not extended the benefit of passing on their estate to their spouse. Same-sex couples that have marriage certificates, domestic partnerships or civil unions also do not qualify for estate tax exemptions.

In 2010, the estate tax will not exist for any couples but when it returns in 2011, the study estimates that 550 same-sex couples will on average each pay $1.1 million more than a married couple.

The study’s author calls for a changing in laws to allow same-sex couples to enjoy the same financial benefits as federally recognized married couples.

“The loss to federal tax revenue of equalizing the treatment of same-sex couples would be less than 0.05% of total projected federal government revenue in each year 2001 to 2011,” said the study’s author Michael D. Steinberger, a public policy fellow at the Williams Institute, UCLA School of Law, and an Assistant Professor of Economics at Pomona College. “Although the spousal deduction might appear to be just one of the traditional benefits of marriage, in fact the unlimited deduction is only a relatively recent change in the federal estate tax law enacted in 1981.”

Steinberger estimates the U.S. government gained $238 million in additional revenue in 2009 on same-sex couple’s estate taxes alone, about one percent of the total estate and gift tax revenue. Gift taxes come from the passing down of assets while a person is still alive to someone besides their spouse. In 2011, the government is poised to gain $618 million.

Congress has enacted exemptions for the estate tax that go up each year. In 2009, the first $3.5 million of a person’s estate cannot be taxed while in 2011, the amount will be pushed down to $1 million. Tax rates range from 18-55 percent depending on the amount of the estate that is left.

Wilton Manors Attorney Shawn C. Newman said same-sex couples can avoid paying such burdensome taxes if they come up with an end-of-life plan years ahead of time.

“There is no easy way out for same-sex couples to avoid paying the estate tax but there are over 60 different techniques that can be used to get the tax burden down to zero,” Newman said. “It’s not the same answer for each couple, but with proper planning ahead of time, people can be prepared.”

Newman, who specializes in estate planning, domestic agreements and wealth preservation for same sex couples, said one technique used to alleviate the tax burden at death is to create a revocable trust.

“It’s essentially a fictitious legal entity that holds a person’s assets during your lifetime for your benefit,” Newman said. “If you fund that trust properly during your life, you can let those assets accrue and grow in value. The assets will pass on while you are alive, therefore when you die, there’s nothing left to be taxed.”

Newman said when a couple comes to his office he evaluates their individual needs, unique family situation, background of the relationship and the type of financial structure they want to leave in the future.



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