Estate taxes remain the primary obstacle for wealthy gay couples. When one partner in a straight marriage dies, the estate may be transferred to the survivor without triggering a taxable event. But this marital deduction does not apply to same-sex couples. Many lawyers and planners working with same-sex couples look to trusts to alleviate the tax consequences of this ineligibility. Charitable remainder trusts are one popular strategy. These irrevocable trusts allow investors to put in money and withdraw a monthly income from the trust until death or for a fixed period. They may be structured so that monthly income is passed to the surviving partner of a gay couple. After that partner dies, remaining assets go to charity, tax free. The trust grantor receives an immediate tax deduction for the amount expected to go to charity.

For same-sex couples, charitable remainder trusts are most effective when they incorporate assets that would otherwise be taxed. (See "To Give and Receive," June 2005, page 102.) For example, when one spouse in a heterosexual marriage dies, the remaining spouse may inherit the assets in the decedent’s 401(k) plan without paying income tax on those assets. Not so for same sex couples. If the 401(k) assets are put into a charitable remainder trust, however, the surviving partner may draw income from those assets, tax free.

Gifting Options
Similarly, same-sex couples can ensure that their surviving partner receives a monthly income through a charitable gift annuity. These annuities are contracts between a donor and a charitable organization by which the charity agrees to make fixed, annual payments to the donor, or surviving partner, in return for a gift of cash or marketable securities. "Giving away assets during life is better than waiting until death," says Don Weigandt, a managing director for JPMorgan Private Bank in Los Angeles. "That’s because you get those assets out of the estate at today’s value rather than some (higher) value in the future."

Married heterosexual couples enjoy unlimited gifting privileges. But same-sex couples are only allowed to give each other $11,000 a year before running into the gift tax. Even so, gay couples do have one advantage over married couples in one area of gifting: a grantor retained income trust, or GRIT. Essentially, a GRIT is an irrevocable trust established for a fixed term in which the grantor retains all of the income generated. After the trust period ends, its assets are usually distributed to the beneficiary, which may include a surviving spouse. The main advantage of a GRIT is that its assets are removed from the grantor’s taxable estate during the trust period or as long as the grantor lives. At the same time, the grantor keeps the annual income derived from this property. The law prohibits married couples from naming spouses or other family members as the beneficiaries of a GRIT. But gay couples, because their relationship is not recognized by the federal government, have the ability to name each other.

Of course, the estate tax is scheduled to disappear in 2010, and then reappear in 2011. But whatever the future holds, proper estate planning for gay couples is likely to require a higher level of due diligence for many years into the future. As Norman A. Dawidowicz, a director with Personal Capital Management in New York City, explains, "Anyone who deals with homosexual couples has to assume that nothing works."

Frederick P. Gabriel-Deveau is a writer who is based in Boston.

Illustration by Isabelle Arsenault/agoodson.com.