As we near the end of the year and look back on significant events that have affected the estate planning arena, we would be remiss if we did not mention the new opportunities which are available to same-sex married couples.
Every American knows that last summer, the U.S. Supreme Court issued a landmark decision in the Obergefell v. Hodges case which held that a fundamental right to marry is guaranteed to same-sex couples by the Fourteenth Amendment to the Constitution. Comparatively few Americans know that the Court’s landmark 2013 decision in United States v. Windsor, which held that key sections of the Defense of Marriage Act were unconstitutional, a decision that contributed to the accelerating pace of judicial decisions which culminated in the Obergefell case this summer, was an estate tax case.
This little-known fact is all the more relevant now that the legal landscape for treatment of same-sex married couples has stabilized nationwide, and it is worth pointing out why. The Windsor case involved a same-sex couple, legally married in Canada, but residents of New York when one of them, Thea Spyer, passed away. Her surviving spouse, Edith Windsor, claimed the marital deduction for federal estate tax purposes but was denied the application of that deduction by the IRS based on the provisions of DOMA then in effect. Edith appealed and won – Section 3 of DOMA was ruled unconstitutional, and she got back the tax she had paid, plus interest.
Why does it matter that this decision involved the estate tax? First, because it both brought into contrast the disconnect between the then-evolving definition of marriage and the systems of laws that rely on that definition but were created without anticipating the evolution. Second, because it highlighted the important considerations facing same-sex married couples as those systems of laws, over time, fell into step with that evolution.
Post-Windsor, same-sex married couples were faced with considerations they may not have countenanced previously – do we file income taxes jointly or separately? How does the marital deduction apply to us in estate and gift taxes? What the heck is portability and why should we care? If we create a joint trust as a married couple, will it be respected with regards to property, held in trust, but located in states that do not recognize our marriage?
All important, and at that point, relatively novel questions same-sex couples were asking. Some of them could not be answered with certainty until this summer. But now, same-sex couples who are married or who are considering marriage face a wide array of estate and tax planning considerations that will be new, and in some cases, altogether foreign concepts. From topics such as spousal rights in the medical context to asset titling decisions, to all manner of income, gift, estate, and other tax considerations, it is more important than ever before for same-sex couples to educate themselves on the implications of these landmark decisions in their own lives and planning.
Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon investigation of specific facts. You should consult an attorney for advice regarding your individual situation.