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Laws May Cause Issues for Owners In Civil Unions

When civil unions became legal for same-sex couples in New Jersey last year, the lesbian, gay, bisexual and transgender community celebrated a hard-won victory. But conflicting laws for LGBT partners at the state and federal levels have some business owners who live with same-sex partners worried about how the conflict may affect their estate planning.

Each member of a civil union must file separate federal tax returns because federal law doesn’t recognize civil unions. There is a burden on small business owners because of the time spent on all the paperwork.

Under federal law one member of a civil union who gives the other more than $13,000 in one year as a gift will eat into a $1 million lifetime gift-tax exclusion.

The $1 million lifetime federal gift-tax exclusion counts toward the federal estate-tax exemption, a tax levied upon death that is currently capped at $2 million but scheduled to jump to $3.5 million next year.

Meanwhile, members of a traditional marriage can gift each other unlimited amounts of money without being federally taxed, and can take federal-tax deductions on all assets left to each after death. Gay and lesbian couples don’t have that right.

For state taxes such as the inheritance-transfer tax and the estate tax, same-sex partners in civil unions get the same exemptions as married couples.

In New Jersey, an estate in excess of $675,000 is subject to the state’s estate tax, however civil-union couples and married couples pay no tax on assets they leave to their spouse. Same-sex couples in domestic partnerships are exempt from the state’s inheritance-transfer tax but not from the estate tax.

LGBT business owners in New Jersey should assemble a team comprised of a lawyer, an accountant and a financial adviser who are familiar with the laws surrounding same-sex couples.