Recent DOMA Ruling Can Cause Financial Confusion

By Dale Terwedo, Owner, Terwedo Financial Services

I started Terwedo Financial Services in 1983 and am one of few Accredited Domestic Partnership Advisors (ADPA®) Designees in the state of Washington. I’ve been working with LGBT couples for several years now and I’ve realized that most people have the same basic financial needs—they want to provide for themselves, their families, and others that they care about. Same-sex couples tend to require a unique process to do that, even with the recent changes in legislature.

As you know, the Supreme Court ruled Section 3 of the Defense of Marriage Act (DOMA) unconstitutional.  This means that married same-sex couples now have a right to the same federal benefits enjoyed by other married couples. It is important to note, however, that this ruling impacted only Section 3. Each state still has its own right to decide whether or not it will recognize marriages for state legal purposes, adding to confusion and increasing the need for further guidance.

The repeal of Section 3 of DOMA grants same-sex married couples access to perhaps more than 1,100 federal benefits and protections. From a financial planning perspective, some of the key areas to review include:

• Retirement Accounts
• Social Security
• Gifting
• Marital Deductions
• Grantor Retained Income Trusts (GRITs)
• Property and Account Titling
• Protective Claims for Tax Refunds

Although Section 3 of DOMA has been struck down, don’t expect to see smooth sailing from here on out.  The full impact of these decisions has yet to be determined as Federal and state governments as well as the IRS will need to issue further guidance to same-sex spouses and their financial planners before the full effects of the repeal will be realized.  Although most will likely be positive for same-sex couples, it’s important to keep in mind that they will likely require major changes to financial, tax and estate plans.

We’ve put together a free guide at www.tfsadvisors.com/guide that provides more information about how the DOMA ruling affects your financial, estate, and tax planning.

Disclosure: Securities and advisory services offered through FSC Securities Corporation, member FINRA/SIPC.  Terwedo Financial Services, LLC is not affiliated with FSC Securities Corporation.

Registered Domestic Partnership Roundtable

GSBA recently hosted its third Registered Domestic Partnership (RDP) roundtable with three dozen of our tax, legal and financial members.  Participants continue to identify critical issues resulting from the lack of federal recognition of Washington’s RDP system.  GSBA will be taking a lead in Washington State to educate about unequal treatment and consequences same-sex couples encounter on tax and financial issues because of the Defense of Marriage Act (DOMA).

With DOMA still in force, the federal government, including the IRS, does not recognize any state or other national marriage, civil union or domestic partnership between two people of the same sex.  However, the IRS does recognize Washington State’s community property laws.  This results in a paradoxical situation where the IRS requires same-sex RDPs in Washington to split their income amongst one another while at the same time completely ignoring any connection between the two separate filers.  Understandably, this creates endless confusion not only with registered domestic partners, but with their CPAs, lawyers, financial professionals and with the IRS staff themselves.  Moreover, while opposite-sex couples are entitled to survivor benefits from their lifetime of Social Security contributions and waiver of estate taxes for communal property, same-sex couples do not have the same entitlement.

The three main issues identified by the group include:

1. Education of professionals - ensuring that the state groups such as the Washington Bar Association and the Washington Society of Certified Public Accountants understand the issues at hand and that they are instructing their members correctly.
2. Education of the community - ensuring that members of the LGBT community understand the realities of entering into a Registered Domestic Partnership, especially the consequences of income splitting. 
3. Advocacy on tax and related issues for the LGBT community, such as the lack of Social Security partner benefits that opposite-sex couples enjoy.

Organizers of the roundtable are working on establishing working groups to address the three issues listed above.  Expect to hear more from this group over the next few months!