More questions and answers from HRC national financial webchat – Part 3

For the remainder of our "7 Days to a Better Financial You" campaign we’ll be posting answers to many of the questions that our legal and financial experts were unable to answer during last Thursday’s live webchat. Questions on a wide range of financial issues affecting GLBT individuals and couples were addressed by Joe Kapp, Advocate contributor and co-owner of a Washington, DC financial planning practice that caters largely to the GLBT community; Brenda Jackson-Cooper, an associate at the Washington, DC law firm Arnold & Porter in the tax and estates practice group; and HRC’s state legislative director Chris Edelson and legal director Lara Schwartz.

The transcript of the live portion of the online discussion is available at www.hrc.orc/chat.

Here are additional questions that were answered by our experts:

George: Is there anything similar to the unlimited marital deduction for a gay couple when one partner dies and the other inherits?  Are there any states that differ from IRS on this?

Joe Kapp: No.  Thanks to the Defense of Marriage Act, at the federal level gay and lesbian couples are precluded from taking advantage of the unlimited marital deduction, whereby a married person can pass an unlimited amount to a spouse.  Gay and lesbian couples are considered strangers in the eyes of Federal law, as such, we have to be very careful about passing assets back and forth, as this has the potential to create unintended gifts.  We have written several articles concerning this in the Advocate magazine.

Brenda Jackson-Cooper:  That is an excellent question, and most unfortunately, there is no unlimited marital deduction from the federal estate tax (or the federal gift tax) for same-sex couples.  There are a few states that provide an unlimited marital deduction with respect to state estate taxes for same-sex couples who are either married or have entered into civil unions in those states, but this does not change the situation with respect to the federal estate tax.  The unavailability of the unlimited federal estate and gift tax marital deduction presents one of the estate planner’s biggest challenges when planning for same-sex couples.  There are, however, some techniques that can be used to reduce the impact of these taxes, and an experienced estate planner should be able to explain your options.

J&K Copelle’: We are a couple who has been together for several years now.  As my partner was injured at work and only income BWC and I the "primary bread winner" we’d contacted the Fed govt. in regards to me claiming my partner and her 2 children on my tax return (she has sole custody & all tax ‘rights’); we were told that we were able to do so.  A month or so later, I was sent a letter from the Fed govt. stating that I had to ‘prove it’ with SEVERAL very specific documents.  As we weren’t able to obtain each that was requested, we were told that now I wasn’t "permitted" to claim any (much less all) of them as dependents.

What we specifically need to know is EXACTLY how I am to go about ‘legally’ being able to do so this year (we’re doing our taxes now)?  Will I be able to ‘amend’ my last year’s return? 

We’d already be ‘legally’ married if in fact all people were truly treated equally as we were all created.  We’ve also initiated steps to assist us in being treated as such.  However, since neither of us is in the legal profession, further information to ensure we have all of the same and equal rights freely given to heterosexual couples will be readily and happily accepted as well.

Thank you for any & all assistance you’re able to give us.

Brenda Jackson-Cooper: Whether you can claim your partner and her children as dependents on your tax return depends on the amount of support you provide to them, the amount of income your partner earns, and the ages of the children and whether they reside in the same house as you do.  I don’t know which specific documents the IRS requested, but it is likely that they will make the same request this year if you claim your partner and her two children as dependents on your tax return.  If there is any way you can obtain the requested documents, I would encourage you to do so.  It is possible to amend last year’s return if you are able to find the requested documents and those documents show that you meet the various requirements.   

Edward: Is it true that New York State currently recognizes same-sex marriages from other places?

Chris Edelson: Yes, thanks to some recent court decisions and great work by litigators with the New York Civil Liberties Union and Lambda Legal, that is the current state of the law as ruled by intermediate appellate courts in New York. 

In February, a New York intermediate appellate court ruled in Martinez v. County of Monroe that, under New York law, same-sex couples who enter into valid marriages outside the state (e.g. in Canada or Massachusetts) are entitled to have their marriages recognized in New York (see  http://www.hrcbackstory.org/2008/02/new-york-to-rec.html).  The decision is on appeal to New York’s high court.  In the meantime, trial courts in New York are obligated to follow the Martinez precedent, as another intermediate appellate court agreed in March (see http://www.hrcbackstory.org/2008/04/a-positive-de-1.html).

The Court of Appeals, New York’s highest state court will have the final say on the matter—it is also possible that the legislature could speak on this matter.