How will same-sex marriage affect SS/Pensions?

[MooreBonds]

Quote:

Originally Posted by ERhoosier Interest in this question is financial, and rather complex. There are fiscal pluses and minuses to both revenues (e.g. marriage income tax penalties, inheritance taxes, SS benefit taxation w/higher outside income, etc.) and benefits (spousal insurances, SS, Medicaid, other public assistance). Controversial assumptions are important in gauging the overall impact of Scotus ruling. Most of what I've read suggests a net fiscal gain for US gov't (inc revenue & benefits), although the numbers vary widely from insignificant to huge. Of course, time will tell over the next several years.

One related legal matter I read about over the past week was a lesbian couple in NY, where one of the women died, and the surviving woman sued for the $300,000+ in inheritance taxes the estate was forced to pay because she couldn't claim the unlimited spousal deduction on inheritance taxes.

Here's a brief article from CNN on it:

Victory for lesbian, years after her partner's death - CNN.com

This does bring up an interesting, legitimate question (and one which I am not at all attempting to troll with, given the recent legal precedent) : if two people of the same sex can legally get married and utilize the unlimited marital deduction for estate tax purposes...how would the court rule on two brothers or two sisters (or any two "close relatives" of the same gender) who's family has significant wealth and does the same thing? The gov't could argue that a brother and sister (or similar related opposite sex couple) who are too close on the family tree are not permitted to legally marry for reasons of too much similarity in the gene pool...but that would not be the same 'concern/justification' for denying two relatives of the same gender from marrying.

The gov't could try and claim that it's a sham marriage only intended to skirt the estate tax laws - but what would be the dividing line between a 'sham same sex arrangement' and a 'legitimate' one when it involves people close to each other on the family tree? What legal precedent is there involving an opposite sex couple marrying "for love" when one spouse is older and/or has a terminal illness, versus it being considered a "sham"?

I realize it would never amount to a significant minority of situations involving the estate tax...but the % of gay/lesbians is a small minority to begin with as well. Just one case involving an estate of $20MM+ could end up setting an interesting precedent.

Think: family business and/or significant family wealth involving a single person and close trusted relatives that they could pass on significant wealth to, far in excess of the standard $5MM estate tax exemption. A $20MM estate would be taxed on $15MM. Given current estate tax rates, that's roughly a cool $5MM in estate taxes that would either be owed or avoided if the unlimited marital deduction were utilized.

And given that 679 people gave up their US citizenship in 1Q 2013 alone, (679 people renounced their US citizenship in 1st quarter of year, IRS says | Fox News) I surely wouldn't be surprised if this situation came up in the not-too-distant future given potentially tens of millions of $ for a significant estate. Sure, many of that 679 aren't doing it solely to save millions in taxes...but I'm sure that a significant minority are.

[haha]

Oh, I completely understand why a gay couple might be interested in this. Self interest, and the desire to understand just where the plusses and minuses apply. Just as any of us is interested in things that will affect our broadly defined well being, and over which we have some say.

Also should be interest by lawyers. Nothing happens in America without lots of legal meanings.

I meant more as a general financial topic for those who are not in the group that will now be allowed to marry. Perhaps I misunderstood where this thread was going.

Ha

[Ready]

Quote:

Originally Posted by MooreBonds This does bring up an interesting, legitimate question (and one which I am not at all attempting to troll with, given the recent legal precedent) : if two people of the same sex can legally get married and utilize the unlimited marital deduction for estate tax purposes...how would the court rule on two brothers or two sisters (or any two "close relatives" of the same gender) who's family has significant wealth and does the same thing? The gov't could argue that a brother and sister (or similar related opposite sex couple) who are too close on the family tree are not permitted to legally marry for reasons of too much similarity in the gene pool...but that would not be the same 'concern/justification' for denying two relatives of the same gender from marrying.

This doesn't have anything to do with being gay. A brother and sister could just as easily try to take advantage of the system to avoid taxes, as could two opposite sex people who really have no personal relationship together but just marry for financial reasons. I'm sure there is a percentage of the population who may do this, but I suspect it's a very small percentage. I don't really know what the government may or may not attempt to do to mitigate this. I hardly ever hear about it, so I would guess it's a very small number of cases where there may be legitimate abuse, and I don't see why gay couples would abuse the system any more or less than straight couples.

[haha]

Quote:

Originally Posted by jollystomper The issue is not so much how many are gay, but how many are entering into same sex marriages. So from an impact to SS/pensions is it better to look at, in states where same-sex marriage is legal, the percentage of same sex marriages occurring as compared to different sex marriages.

Sure, who says you have to be gay to enter into a same sex marriage? Does a policeman or a social worker insist on watching the consummation of the marriage? A heterosexual couple can get married if they have zero interest in or perhaps not even the capacity to have sexual intercourse. Why to two men or two women?

Like much else in our society, this should prove endlessly fascinating.

Ha

[Meadbh]

I predict a boom in the wedding industry, to be followed in a few years by a smaller boom in divorce litigation.

At least that's what has happened here.

[urn2bfree]

Quote:

Originally Posted by REWahoo Wikipedia is known to have less-than-accurate info on a number of subjects and I am highly suspect in this number. I really do not believe we will ever know the % - not that it really matters. Here's info from Gallup pointing out the difficulty of coming up with an accurate number: What Percentage of the Population Is Gay?

Not trying to be difficult or hijack the thread, but what is YOUR source or example to back up this notion about Wikipedia being inaccurate? About which "number of subjects" is this "known?" I do not know if that is or was true, but such off hand dismissal,of information requires some backing up, too.

[REWahoo]

Quote:

Originally Posted by urn2bfree Not trying to be difficult or hijack the thread, but what is YOUR source or example to back up this notion about Wikipedia being inaccurate? About which "number of subjects" is this "known?" I do not know if that is or was true, but such off hand dismissal,ofinformation requires some backing up, too.

I checked Wikipedia and they say they are accurate.

Seriously, I'm in complete agreement with the bold part of your quote above.

If I can believe the accuracy of the info I see on the internet about the accuracy of Wikipedia , (like this one or this one), certainly most of the info contained in Wikipedia is correct. Problem is, some of it is not (one of the linked articles quotes an estimate of less than 5%) and there is no way to know which is which without looking to other sources for confirmation. That's what I did when I made my comment, and found several sources that differed substantially from the % you quoted from Wikipedia.

In the words of a former US Pres, "Trust but verify".

[MichaelB]

+1 @ trust but verify. There is no reason to believe Wikipedia will be more accurate than other informed sources, on this or any other topic.

[bUU]

I think the controversy about the number of homosexuals is a distraction. While there is a compelling need to establish firm numbers on which to make projections of costs and revenues into the future, the efforts to do so will invariably be derailed by the push-and-pull of those trying to manipulate whatever numbers are arrived at, in order to promulgate their perspective with regard to the political matters.

What matters in terms of the projections, though, aren't the number of homosexuals, but rather the number of same-sex marriages. For that, we are starting to get some good numbers. Ignoring the initial flood of same-sex marriages in 2006, Massachusetts has been running approximately 1600 same-sex marriages per year. [Source: The Republican Newsroom, MassLive.com.] Compare that to 36000 marriages in total, on average. [Source: US Census.] So same-sex marriages represent about 4.5% of marriages in the Commonwealth.

This reflects the best information we have regarding the impact of a compassionate, accepting state on the rate of same-sex marriage within it. (There might be some useful data from Iowa, but I suspect it will show pretty-much the same.) It fully reflects any systemic difference there might be between the propensity to marry between homosexuals and heterosexuals, because all we care about for these projections is how many marriages there are. There is some upward pressure reflected in that number due to folks relocating to the Commonwealth to enjoy the benefits of marriage, but also a lot of downward pressure on that number stemming from the fact that DOMA severely capped the benefits of marriage. No one can prove that the upward pressures are more or less than the downward pressures, so 4.5% remains the best number based on real data. There is already firm data regarding the number of marriages for use in the projections, so the projections are best served by considering the impact of an up-to 4.5% increase on top of those projections, again both with regard to costs and tax revenues associated with the marriage penalty, etc.

So the variable that remains is if, and if so then how long until, other states become compassionate and accepting of homosexuals as Massachusetts is, thereby bringing about same-sex marriage up to that same rate. In other words, we could see this as a nationwide curve that increases over time, with 4.5% as an asymptotic point. The slope and inflection points of that curve remain a mystery: Since they are reflective of changes in attitude they cannot be modeled based on existing data, especially since, by its very nature, the curvature reflected by the states that have already progressed cannot be used as indicators, since they are generally the most progressive states. Less progressive states will not only lag, in terms of rate of progress, but may follow completely different paths. Their status as less progressive may, itself, have already pre-biased their population, effectively fostering relocation of homosexuals out of those states and into the more progressive states.

[donheff]

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Originally Posted by Katsmeow For SS and pensions specifically that is probably the case. However, for a same sex couple deciding whether to marry or not, particularly later in life, I can see that it would be something to think about just like it may be for opposite sex couples. That is because, the only benefits are not just SS and pensions. When looking at the entirety of benefits in some instances marriage would be financially beneficial while in others it might not. A married couple might pay more in income taxes, for example. Someone eligible for SSI or Medicaid as a single person might not be eligible as a married person, and so on. In short, being married doesn't just involve financial benefits but can also involve financial penalties.

For both straight and gay high-dual-income couples the financially optimal path might be to stay single until ER (thus limiting income taxes) and marry in the autumn years so they can pass their estates to each other without tax or probate. But most of us don't make marriage choices based primarily on money.

[bld999]

Quote:

Originally Posted by donheff For both straight and gay high-dual-income couples the financially optimal path might be to stay single until ER (thus limiting income taxes) and marry in the autumn years so they can pass their estates to each other without tax or probate. But most of us don't make marriage choices based primarily on money.

Have I missed an entire chapter on law and tax code? How does this work?

[rodi]

Quote:

Originally Posted by MooreBonds This does bring up an interesting, legitimate question (and one which I am not at all attempting to troll with, given the recent legal precedent) : if two people of the same sex can legally get married and utilize the unlimited marital deduction for estate tax purposes...how would the court rule on two brothers or two sisters (or any two "close relatives" of the same gender) who's family has significant wealth and does the same thing? The gov't could argue that a brother and sister (or similar related opposite sex couple) who are too close on the family tree are not permitted to legally marry for reasons of too much similarity in the gene pool...but that would not be the same 'concern/justification' for denying two relatives of the same gender from marrying. The gov't could try and claim that it's a sham marriage only intended to skirt the estate tax laws - but what would be the dividing line between a 'sham same sex arrangement' and a 'legitimate' one when it involves people close to each other on the family tree? What legal precedent is there involving an opposite sex couple marrying "for love" when one spouse is older and/or has a terminal illness, versus it being considered a "sham"?

This is a red herring. It is not legal for siblings to marry. Nor for first cousins. 2nd cousins is another thing (ask Rudy Giuliani).

There are plenty of marriages that are basically business arrangements. My husband worked for a well known firm where the married principals' marriage was far more a business arrangement than a marriage... down to seperate houses for living. But it was a legal arrangement that lasted decades.

I live in southern CA... Lots of marriages that are based on less altruistic, romantic reasons. ( eg: old guy marrying young hotty... she's doing it for financial reasons, not love... he's doing it for reasons that are probably not based on "soul mate" criteria.) But they are legal marriages.

[donheff]

Quote:

Originally Posted by bld999 Have I missed an entire chapter on law and tax code? How does this work?

To be honest, I don't know if it does. But everybody talks about the tax penalty for dual high income earning married couples. They would be better off if they were single apparently. So, live together single for most of your life. Pay single tax rates and save bucks for 30 years. Get married in your 70s after experiencing a religious conversion (to avoid charges that you were motivated purely by tax considerations) and whoever dies first passes on their estate to the other under the marriage rules.

[anethum]

Quote:

Originally Posted by haha Sure, who says you have to be gay to enter into a same sex marriage?

Who says you have to be straight to enter into an opposite-sex marriage?

Who says you have to be in love to enter into any type of marriage?

------------------------------------------

As for the original question, any negative fiscal effect on the federal treasury will be trivial in the grand scheme of things. But the effects for individual same-sex couples or surviving spouses are potentially highly significant.

The greater effect, however, is to make gay citizens equal to straight citizens, at least in those 13 states & DC where same-sex marriage exists. That's priceless.

[youbet]

Quote:

Originally Posted by donheff To be honest, I don't know if it does. But everybody talks about the tax penalty for dual high income earning married couples. They would be better off if they were single apparently. So, live together single for most of your life. Pay single tax rates and save bucks for 30 years. Get married in your 70s after experiencing a religious conversion (to avoid charges that you were motivated purely by tax considerations) and whoever dies first passes on their estate to the other under the marriage rules.

As long as you have a guarantee that neither will die unexpectedly before marriage.......

I think that dual career - high income homosexuals have the same issues to consider when deciding whether to marry or not as dual career - high income heterosexuals.

[youbet]

Quote:

Originally Posted by rodi There are plenty of marriages that are basically business arrangements.

Of course. The legalization of same sex marriages simply expands the population who might choose to take advantage of legal rights, gov't benefits or laws currently in place for married partners.

Going back to OP's opening question regarding SS and gov't pensions, I think that as long as the ten year rules remain in place (you must be married to someone for ten years in order to qualify for spousal SS benefits based on the other person's earnings record) marrying for SS benefits will be minimal. There are similar rules for many private pensions too.......

Much of our tax code relates to marital status. Property ownership laws, insurance regulations and pension rules too. It will be interesting to watch and see if anything develops where folks are taking advantage of new situational circumstances and eventually causing codes, rules, laws, etc. to be changed.

We'll see.......

[haha]

Quote:

Originally Posted by anethum Who says you have to be straight to enter into an opposite-sex marriage? Who says you have to be in love to enter into any type of marriage?

Certainly not me.

I have no opinion on anything, except what I will have for dinner.

Ha

[ERhoosier]

Quote:

Originally Posted by donheff For both straight and gay high-dual-income couples the financially optimal path might be to stay single until ER (thus limiting income taxes) and marry in the autumn years so they can pass their estates to each other without tax or probate. But most of us don't make marriage choices based primarily on money.

But in a few narrow circumstances the "unlimited" marriage estate tax exemption could in be a net tax DISadvantage. IIRC, for 2013 the exemption is $5.25M. Two individuals worth $5M each could die & leave total $10M to their heirs without triggering estate taxes. However if those 2 marry, one dies & inherits all, then that remaining spouse soon dies the gov't gets to tax $4.5M of the total estate of these 2 folks.

[urn2bfree]

Quote:

Originally Posted by ERhoosier But in a few narrow circumstances the "unlimited" marriage estate tax exemption could in be a net tax DISadvantage. IIRC, for 2013 the exemption is $5.25M. Two individuals worth $5M each could die & leave total $10M to their heirs without triggering estate taxes. However if those 2 marry, one dies & inherits all, then that remaining spouse soon dies the gov't gets to tax $4.5M of the total estate of these 2 folks.

Not sure about that...something about portability of the exemption passing to the surviving spouse or something.

[ERhoosier]

Quote:

Originally Posted by urn2bfree Not sure about that...something about portability of the exemption passing to the surviving spouse or something.

Although portability of spousal exemption was indeed extended in 2013, this issue remains complex. Portability of spousal exemption is not automatic and (apparently) does not apply in all circumstances. With amount of $$ involved in potential tax, getting solid tax advice for individual circumstances is wise.

A Married Couple's Guide To Estate Planning - Forbes