1. Good News for Same-Sex Couples and the Federal Estate Tax

    Earlier this month, U.S. District Judge Barbara Jones granted a summary judgement in an estate tax case that, according to law firm Duane Morris “created a precedent that is likely to positively affect same-sex married couples for years to come.”

    The case involved a same-sex couple (Thea Spyer and Edith Windsor) who were legally married in Canada and recognized in New York because “New York affords legal recognition to civil marriages that are lawful in the jurisdiction where they are performed.”

    In 2009, Thea finally succumbed to years of debilitating illness and passed away, leaving everything to Edith. From Duane Morris again:

    “While on its face, the estate-tax marital deduction applies to all legally married couples, same-sex couples have been denied these benefits due to the plain language of the Defense of Marriage Act (DOMA)…

    Due to DOMA, the Internal Revenue Service excluded same-sex spouses from the benefits of the estate-tax marital deduction. This consequently caused Thea’s estate to owe $363,053 in federal estate tax, which is an amount that the estate would not have had to pay if she married a male.”

    Edith fought the tax and after much legal wrangling, finally received judgement in her favor:

    “As a result of this groundbreaking case, couples living in states that license or respect same-sex marriages are now entitled to equal treatment for federal estate-tax purposes. This case also suggests that executors of estates involving a same-sex surviving spouse may be entitled to a refund of federal estate taxes that they may have been wrongfully required to paid.”

    Additional insight from business and tax attorney Charles (Chuck) Rubin:

    “An appeal of the case is likely. If upheld (and absent contrary rulings in other Circuits or ultimate reversal by the U.S. Supreme Court), then the estate tax marital deduction will be allowed to same-sex persons who are married under applicable law. Of course, not all jurisdictions allow for such marriages, but determined couples can jurisdiction shop to become married if they desire. 

    There are numerous other federal tax provisions that provide benefits to married persons. Presumably, most, if not all of them, will likewise become available to same-sex married couples if the DOMA provision is invalid. These include (a) the federal gift tax marital deduction, (b) joint tax return filing rates and permissions, (c) favorable “stretch” and rollover provisions for IRA’s and other qualified retirement plan distributions to a surviving spouse, and (d) portability of unified credit amounts between spouses. Other federal law provisions outside of the Internal Revenue Code that turn on marital status may also apply, including those relating to employment benefits and other social service benefits…”
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    We’ll keep you posted as the case develops. Read the updates:
    Additional estate planning updates on JD Supra»