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Changing Demographics – Part 3

In last week’s post I explained the differences between domestic partnership, civil union and marriage when talking about the rights of same sex couples. So how does this impact the issues faced by aging LGBT seniors?

Married vs. single has an impact on taxes. Different thresholds and rates apply to married couples and single individuals with regard to income taxes. Additionally, we must look at estate, inheritance and gift taxes. Transfers between spouses are not subject to estate or gift tax. Domestic partnership and civil union provide the same rights as married couples – at least as to New Jersey taxes. Only marriage, however, would give the couple the same rights with respect to federal taxes.

New Jersey no longer has an estate tax. The federal estate tax exemption is now $11.4 million so most couples wouldn’t be affected by this regardless of whether they are married or not. There remains, however, an inheritance tax which is based on the relationship of the heirs to the person who died. It is this tax that penalizes same sex (or opposite sex) couples who are not married because non related (Class D) beneficiaries pay a tax of 15 to 16% on assets inherited whereas spouses and partners under the Civil Union and Domestic Partnership laws are Class A beneficiaries and not subject to the tax. This obviously can greatly impact the surviving partner who could avoid a potentially large tax bill at the death of the first partner.

Married vs. single also has an impact when it comes to long term care planning and qualifying for government benefits such as Medicaid and VA Aid and Attendance programs. Each program is a needs based benefit with asset limits. Individual living together are treated differently when it comes to applying for these benefits than when the individuals are married.

The reason is that a single individual’s assets are evaluated for purposes of eligibility but not the partner’s assets. On the other hand, both spouse’s assets are counted when married. While Medicaid requires the applicant to spend down to less than $2000, a spouse must also spend down his/her asset under a certain limit.

When I explain this to people the immediate question I am asked is “which way is better?” My answer is it depends on the particular situation. There isn’t a “one size fits all” answer. Which is also the answer to whether it makes sense for same sex couples to marry or not. It’s the same analysis as for opposite sex couples.