Wills, Trusts & Estates: The Federal Defense of Marriage Act (“DOMA”) and Same Sex Marriage

September 25, 2013

Reprinted with permission from Lloyd Harbor Life.

At the end of June, the U.S. Supreme Court decided the case of Windsor v. U.S. and ruled that all legally married same sex couples are entitled to be treated like married heterosexual couples under federal law. The Court found part of the Defense of Marriage Act (“DOMA”) unconstitutional. Over 1,000 federal laws are affected by this decision. The decision provides income and estate tax refund and planning opportunities for married same-sex couples. It also has ramifications for employers and the benefits they offer to employees and their spouses.

DOMA had said that same-sex marriage, even if the marriage was legal under state law (like in New York since July, 2011), was not recognized for any federal purposes, including joint income tax returns, the marital deduction for gift and estate taxes, Social Security benefits, retirement and insurance benefits. The facts in the Windsor case involved two New York women, Edith Windsor and Thea Clara Spyer, who married in Canada in 2007. Thea died in 2009, and Edith inherited all her property. Because Edith was not treated as Thea’s spouse under DOMA, Edith was required to pay over $360,000 in federal estate taxes. With the June Supreme Court decision, Edith will receive a full refund of these taxes.

Same sex married couples must now review income tax and gift tax returns that they have filed, as benefits previously denied to them are now available; and refunds may also be available. If an estate tax return was filed for the estate of a same sex spouse, the return must be reviewed to determine if there is an opportunity to obtain a refund. Going forward, same sex married couples should review their estate planning documents to confirm they have effectively used all estate planning techniques now available to them as “spouses” under federal, as well as New York, law.

There are non-tax ramifications as well. Social Security benefits, life insurance, medical benefits, IRA rollovers and survivor’s pension benefits, to name a few. In addition, property owned by same sex married couples in other states that do not recognize same sex marriage must be considered.

While there are still areas of uncertainty in view of the Windsor ruling, it is imperative that same sex married couples work with their legal and financial advisors to review Wills, beneficiary designations and other documents to make sure their intentions are being carried out in light of the additional tax and non-tax benefits that are now available.

If there is a trusts or estates topic that you would like to know more about, please feel free to email me at pmarcin@farrellfritz.com with your suggestion. I will do my best to cover it in a future column.

 

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