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.

Press Release: GSBA Convenes Roundtable on Federal Taxation Inequalities for Same-Sex Couples

[Press release available on the GSBA website]
 
Media Contact: Matt Landers, Public Policy & Communications Coordinator, Greater Seattle Business Association, 206.363.9188, mattl@thegsba.org

GSBA Convenes Roundtable on Federal Taxation Inequities for Same-Sex Couples

Tax, Legal and Financial Professionals Discuss the Implications of the Defense of Marriage Act on Marriage Equality in Washington State

SEATTLE – The Greater Seattle Business Association (GSBA) held its fourth roundtable on federal tax inequities on Wednesday, January 23. The GSBA Professional Roundtable, a project of GSBA’s Public Policy Task Force, was created in 2011 to address the IRS ruling mandating income splitting for same-sex registered domestic partners and same-sex married couples. The GSBA Professional Roundtable continues to meet to discuss the changing legal landscape in the wake of the approval of Referendum 74 by Washington State voters in November 2012.

Given the lack of clarity from the IRS and the complexity of the IRS’ new tax requirements, GSBA, as this region’s LGBT and allied chamber of commerce, took a leadership role to bring together professionals in tax-related professions to share information and provide resources for other professionals who work with same-sex registered domestic partners married couples.

Since 2007, Washington State has made Registered Domestic Partnerships available to same-sex couples, and marriage since December 6, 2012. The IRS requires that legally recognized same-sex spouses and domestic partners residing in community property states such as Washington split their income, with one-half of each other’s income being attributed to the other spouse or partner and each reporting such community property split income on their individual federal tax returns. Different sex married spouses can file one joint federal tax return, but registered domestic partners and married same-sex spouses must file separate individual federal tax returns, because the Defense of Marriage Act (DOMA) prohibits federal recognition of  same-sex relationships legally recognized by a State.  The manner in which the IRS requires members of same-sex couples to prepare their tax returns is complicated, burdensome and often more expensive than the preparation of single joint returns for different sex married couples.

The GSBA Professional Roundtable is a brain trust and provides a forum at which dozens of GSBA-member tax, financial and legal professionals are able to share their experiences with one another on how to properly file federal tax returns for legally recognized same-sex couples and to best protect their income and assets. CPAs, tax preparers and attorneys in community property states have demanded that the IRS provide clarity and issue guidance related to separate, joint and community property and income splitting. While the IRS has provided limited useful guidance, tax and legal professionals together have created best practices for filing and strategies when IRS agents unaware of their own policies improperly reject the tax returns.

Representatives from the offices of Senators Maria Cantwell and Patty Murray, as well as Congress Members Suzan DelBene, Jim McDermott and Adam Smith have attended GSBA roundtables to listen to their constituents’ concerns regarding the confusion of income splitting and the many ways that DOMA discriminates and adversely impacts LGBT families.

GSBA is forming ad hoc committees to further educate and advocate on these issues. One committee will focus on professional advocacy with members of the Roundtable reaching out to others in their respective fields to ensure that the wider profession is aware of the requirements and challenges. The aim of the second group is to work on community education and with our elected officials towards tax equity for LGBT families. Anyone interested in participating in either group should contact Matt Landers.

[post updated on 1/30/13]