Estate Planning Law Alerts

July 17th, 2013

Supreme Court Recasts Estate Planning for Same-Sex Spouses

As you probably know, two recent Supreme Court cases have altered the estate planning landscape. Here's a summary of what happened with the Defense of Marriage Act - and suggestions for how to proceed.

In 1996, Congress enacted the Defense of Marriage Act (DOMA) which allowed states to refuse to recognize same-sex marriages performed under the laws of other states. Section 3 of DOMA provides that "the word 'marriage' means only a legal union between one man and one woman as husband and wife, and the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife."

As a result, same-sex spouses were barred from receiving any of the Federal benefits afforded to opposite-sex spouses.

United States v. Windsor

At issue in United States v. Windsor was the constitutionality of Section 3 of DOMA. In a 5-to-4 decision handed down on June 26, 2013, the Supreme Court struck down Section 3 of DOMA as an unconstitutional violation of equal protection. The Court also held that the question of whether to allow same-sex marriage should be left to the states. This decision does not require states to allow same-sex marriage or to recognize same-sex marriages entered into in other states - it only prohibits the Federal government from refusing to recognize same-sex marriages. Same-sex civil unions and domestic partnerships are not covered by this decision, and thus partners in those relationships will not be entitled to the same benefits as spouses in legal same-sex marriages.

Hollingsworth v. Perry

California's Proposition 8 was a voter initiative to overturn same-sex marriage in California. In Hollingsworth v. Perry, a related 5-to-4 decision issued the same day as Windsor, the Supreme Court held that neither the Supreme Court nor the Court of Appeals had authority to decide the case on the merits, due to lack of standing. As a result, the District Court decision, which held Proposition 8 unconstitutional, was reinstated and enforced. California now rejoins the District of Columbia and 12 other states that have legalized same-sex marriage (Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington).

Consequences of Windsor

From a tax planning perspective, married same-sex couples living in states that recognize same-sex marriage are now entitled to the wide range of rights and benefits under Federal law available to opposite-sex spouses with respect to income, gift and estate tax planning.

Federal benefits now available to married same-sex couples include:

  • Right to file a joint income tax return
  • Unlimited marital deduction for gift and estate tax purposes
  • Estate tax portability
  • Treatment as a surviving spouse for retirement plans
  • Social Security, Medicare and Medicaid benefits

Recommendations

While the Supreme Court rulings are effective immediately, it may take time for Federal agencies to fully implement these changes. In the meantime, same-sex married couples should consider revising their estate plans, as well as amending income tax filings and beneficiary designations, to take advantage of newly available Federal benefits. It may also be prudent to review existing life insurance coverage, particularly if it was purchased to cover an estate tax burden that no longer exists.

If you have questions about the implications of the Supreme Court decisions or the recommendations above, please contact Linda Wank at (212) 826 5546 or lwank@fkks.com, Barbara Shiers at (212) 826 5526 or bshiers@fkks.com, or any other member of the Frankfurt Kurnit Estate Planning and Administration Group.