I’m asked quite often how I feel about the state-by-state recognition of same-sex marriage. On one hand, I’m delighted to see it happening at all, but the attorney in me can’t help but see all of the headaches come tax season. There is no Federal recognition for same sex marriage. That means doing tax returns 80 million different ways (I exaggerate), and it still means that when someone’s same-sex partner or spouse dies there will be tax and distribution issues when it comes to their combined estate. I know, I know. Always the voice of gloom in the middle of everyone’s victory dance. Well, that’s how we lawyers are.
One method of equalizing the Federal tax benefits extended to heterosexual, married couples is to create a Grantor Retained Income Trust (one of the few advantages that same-sex couples and other non-marrieds have over married traditional couples). The US tax code prohibits “family members” from utilizing GRITs. And since the federal government refuses to recognize same-sex couples – legally married or not – as “family members”, we are actually provided with a small benefit.
A Grantor Retained Income Trust (GRIT) is a tax-saving trust in which the grantor of the trust places assets or transfers property into an irrevovable trust. The terms of the trust requires all of the income to be paid to the grantor for a specified period of time. At the end of the term, the remaining property is transferred to the beneficiary as named in the trust. The benefit to this is that, at the end of the term, your partner will receive this property free of any gift or estate taxes on the appreciated value of the property. However, should you die before the termination of the trust a proportionate share of the trust will be included back into the grantor’s estate.
A GRIT is a good strategy for someone who has not utilized his/her lifetime gift tax exemption (now tied to the Estate tax amount of $5 million). It is also a valuable tool for someone who wishes to gift property to another while maintaining some control, continue to use the property or receive some income from the property.
GRITS and GRATS (Grantor Retained Annuity Trust) – more on that later—are a few of the tricks we attorneys specializing in unique families have up our sleeves to help protect the rights and assets of unique families. While I am encouraged by the mini-revolution occurring in the states when it comes to gay marriage I am still in watch mode to see how it all plays out against the background of DOMA. Until such time that the Federal government recognizes same-sex marriage, unique and non-traditional families will have to take extra steps to protect their rights and the rights and happiness of their loved ones.