The U.S. Supreme Court’s ruling will change estate planning for affluent same-sex married couples.
United States v.Windsor, the case in the news last week, involved an important tax break for married couples. The marital deduction allows spouses to transfer as much as they want to each other, either during life or at death, without having to pay federal estate or gift tax. Same-sex couples didn’t get this break, until last week, because of the federal Defense of Marriage Act or DOMA. That law defined marriage as a “legal union between one man and one woman,” and spouse as “a person of the opposite sex who is a husband or a wife.”
Previously, as a result of DOMA, same-sex married couples had to pay federal estate taxes on their inheritance if it exceeded the tax-free amount. The person that brought the case to the Supreme Court had this happen to her. Her partner of 44 years died when the federal exemption was $3.5 million and the tax rate was 45%.
Since, under DOMA, they were not considered married under federal law, in spite of getting married in Canada where same-sex marriage is recognized, the surviving spouse had to pay $363,053 in federal estate tax. She then filed a lawsuit for a refund, claiming that the definitions of “marriage” and “spouse,” in Section 3 of DOMA, violate the Equal Protection Clause of the Constitution. The District Court agreed, as did the Court of Appeals for the Second Circuit, ordering that the tax be refunded.
The Supreme Court affirmed the lower courts’ opinions. By striking down DOMA’s definition of marriage, it makes some 1,000 federal laws and regulations available to same-sex married couples.
This opens up many estate planning opportunities for same-sex married couples that were not possible before.
Make a Payment
