By Anthony S. Rachuba

Now that same-sex married couples in the Commonwealth of Pennsylvania (PA) can enjoy the tax benefits that have long been available for opposite-sex married couples*, there are a few considerations to make regarding estate planning.

Previously, same-sex couples living in PA were negatively impacted at death from an inheritance tax standpoint. PA imposes an inheritance tax on the assets of an individual resident upon said individual’s death. In addition, for non-residents, PA also imposes its inheritance tax on real property (and tangible personal property located at such real property). The rate of the inheritance tax imposed is determined by the nature of the relationship of the beneficiary receiving the property and the decedent. For example, if the assets of the decedent pass entirely to the children of the decedent, the rate of inheritance tax imposed is 4.5 percent. If all of the decedent’s assets pass to a sibling, the rate is 12 percent, and for assets passing to anyone else (other than a spouse or charitable organization) the rate is 15 percent.

Same-sex couples can now potentially save significant amounts of inheritance taxes that otherwise would have been paid to the Commonwealth.

For opposite-sex married couples, there is no inheritance tax imposed at a spouse’s death when all of the assets pass to the surviving spouse, but same-sex couples were subject to the highest PA inheritance tax rate of 15 percent. In the eyes of the Commonwealth, they were considered unrelated parties. Same-sex couples can now potentially save significant amounts of inheritance taxes that otherwise would have been paid to the Commonwealth. For a decedent (a deceased person) who leaves a $500,000 estate to his/her same-sex spouse, the inheritance taxes saved is $75,000.

The recognition of same-sex marriages also impacts what happens if one same-sex spouse dies without leaving a Will. In the event a PA resident dies without leaving a Will, that resident’s probate estate passes according to PA’s intestacy statutes. The intestacy law attempts to leave the decedent’s assets to his/her closest living family members. If a decedent is survived by his/her spouse and children, the surviving spouse receives approximately 50 percent of the decedent’s estate while the other 50 percent passes equally to the decedent’s children. Previously, for same-sex couples, when one of the spouses died without a Will, the surviving spouse of the decedent would receive nothing. In fact, if no living relatives of the decedent could be found, the assets would pass to the Commonwealth. The strike down of the ban on same-sex marriages gives a surviving spouse of a same-sex marriage the right to receive an intestate share.

The recognition of same-sex marriages also allows a same-sex couple to hold real estate as “tenants by the entirety.” This is a term afforded to married couples owning real estate together and provides that upon the death of one spouse the property automatically passes to the surviving spouse. The more significant benefit of holding title to real property as tenants by the entirety is the creditor protection it provides. In the event a spouse has creditors who are attempting to attach liens to the assets of the debtor spouse, the real estate that is held as tenants by the entirety is protected. However, if both spouses are liable for the debt, the real property would not be protected.

Same-sex married couples residing in PA can now plan their estates in the same fashion as opposite-sex married couples. The unlimited marital deduction can be utilized to avoid any federal estate tax taxes at the death of the first spouse and the surviving spouse can preserve the unused federal estate tax exemption of the deceased spouse (the federal estate tax exemption is $5,340,000 for decedents dying in 2014). Estate planning for same-sex couples previously consisted of having life insurance to provide for a surviving “spouse” because PA does not impose its inheritance tax on life insurance regardless of who receives the proceeds. This strategy is no longer necessary as there is no inheritance tax on all assets passing to the surviving same-sex spouse.

In addition to having Wills prepared, same-sex couples should also have Durable General Powers of Attorney and Health Care Powers of Attorney. These documents appoint a person(s) to act as agent(s) for an individual with respect to financial and health care decisions. In the absence of a health care power of attorney, or other document appointing a health care surrogate, a same-sex couple did not have the statutory right to make health care decisions for each other. While the change in the law gives the same-sex couple the right to act for each other when there is no health care power of attorney document, it is still necessary for same-sex couples to have durable general powers of attorney as there is no statute which gives a spouse the right to act for the other spouse without a durable general power of attorney document appointing the spouse.

Same-sex couples in PA should consult with an attorney to discuss their estate planning and the planning opportunities in light of the allowance of same-sex marriages.

Anthony S. Rachuba is an attorney at the Center Valley law firm of Fitzpatrick Lentz & Bubba, P.C. 

* In the May 2014 case of Whitehead v. Wolf, the U.S. District Court for the Middle District of PA struck down the state’s ban on same-sex marriages.  The ruling provides that PA must recognize out-of-state same-sex marriages and allow for same-sex couples to marry within the state.