IRS Recognition Does Not Apply to Colorado Civil Unions
Beginning May 1, 2013, pursuant to the Colorado Civil Unions Act, Colorado will begin legally recognizing civil unions. In a strictly estate planning context, such recognition of civil unions provides those parties to a civil union with rights and protections that were traditionally vested in spouses, including:
The ability to inherit real and personal property via the laws of intestacy (which will apply in the event a deceased partner did not leave a will).
Priority for appointment as a personal representative, guardian, or conservator for a partner.
Rights relating to declarations concerning the administration, withholding, or withdrawing of medical treatment.
Rights concerning the disposition of a partner’s remains.
This recognition provides much-needed legal certainty for same-sex couples and other partners in civil unions, especially when it comes to matters of inheritance, health care decisions, and end-of-life planning. For older couples, in particular, these protections can offer peace of mind, ensuring that their wishes are respected during critical moments, and that their partner has the legal authority to act on their behalf.
However, it is important to note that Colorado’s recognition of civil unions does not extend to the federal level. Despite the Internal Revenue Service’s (IRS) 2013 ruling that all legally married same-sex couples will be recognized for federal tax purposes, this ruling only applies to couples who are legally married, not those in civil unions. Thus, while civil unions in Colorado grant important state-level rights, couples in such unions will not enjoy the same tax benefits available to married couples at the federal level.
For example, a same-sex couple legally married in Minnesota and residing in Colorado will be treated as married for federal tax purposes. This recognition applies to all taxes imposed under the Internal Revenue Code, and can result in significant tax savings, particularly because transfers between spouses are exempt from estate and gift taxes. Unfortunately, a couple who has only received a Colorado civil union license will not be eligible for these federal tax benefits, which can impact long-term financial and estate planning.
Conclusion
While Colorado’s Civil Unions Act provides critical state-level protections for couples, it’s important to understand the limitations in terms of federal benefits. For older, well-established couples who have accumulated significant assets, the difference between being in a civil union and a legal marriage can result in substantial tax implications.
By working with a knowledgeable estate planning attorney, couples can explore all their options and create a plan that maximizes the protections and tax advantages available to them. Understanding the evolving legal landscape is key to ensuring that your estate plan reflects both your personal wishes and the most advantageous financial strategies.
*This article is intended for informational purposes only and should not be construed as legal advice. Individuals involved should consult with legal professionals for specific guidance tailored to their circumstances.
Thank you for reading!
Do you still have questions regarding this issue?
Reach out to our office today to speak to an expert on the matter.
