Same-sex marriage has been a controversial issue in American politics, and will likely continue to be a hot button for many. But On March 27, the Supreme Court is set to rule in a case that may impact both politics and same-sex estate planning as we know them.
The case going before the Supreme Court is the story of Edith Windsor and Thea Spyer. The subject: the application of the federal estate tax in the context of a “same-sex marriage.” A recent article in Reuters considered the case and its implications. The article titled “Analysis: Death, taxes and Supreme Court's gay marriage case,” notes that the case began when Thea Spyer passed away and left her estate to Edith Windsor, her spouse under Canadian law. However, because the Defense of Marriage Act (DOMA) precludes same-sex marriage, Spyer’s estate was not recognized for purposes of affording the unlimited marital exemption.
This exemption permits a spouse to pass his or her estate to their surviving spouse without federal estate taxation. Because her marital status is not recognized under DOMA, Windsor had to pay federal estate taxes of approximately $363,000 on the $600,000 of estate assets above the $3.5 million exemption amount then in place. Her lawsuit is to recover that payment. She is alleging that the basis of the tax, DOMA, is itself unconstitutional because it does not afford equal protection to both heterosexual and same-sex married couples.
All same-sex couples and professionals with same-sex clients should be watching this case carefully. If the Supreme Court agrees with Windsor, the implications will be game-changing on many levels, both social and legal. For one thing, same-sex married couples would likely be treated the same as heterosexual married couples for federal income tax purposes, and many may become subject to the so-called "marriage penalty." Given the recent decision to keep the federal estate tax exemption at over $5 million, however, only a small number of same-sex couples would see a difference in their estate taxes ; indeed, if the exemption had been at the current level when Windsor's spouse had died, she would not have owed any federal estate tax even without the unlimited marriage exemption.
If DOMA does remain the law of the land, then traditional same-sex estate and tax planning will remain unchanged but no less important.
For additional information about estate planning for same-sex couples, contact us at Peak Legal Group.
Reference: Reuters (March 12, 2013) “Analysis: Death, taxes and Supreme Court's gay marriage case”