The Supreme Court is on the precipice of deciding the future of estate planning for same-sex couples. In two cases to be heard in March, the justices will hear arguments on California’s proposition 8 and the federal Defense of Marriage Act (“DOMA”).
How the Supreme Court decides these cases will have a bearing on the estate planning options for same-sex couples. As it stands, same-sex couples currently cannot use the popular marital deduction trust to minimize the impact of estate taxes. This type of trust is used by married couples to protect each of their estate tax exclusions ($5.12 million in 2012, and scheduled to be $1 million in 2013), instead of losing the benefit of the first spouse’s exemption by virtue of the unlimited marital deduction only available to married couples.
In Windsor v. United States, the Supreme Court examines DOMA in this estate tax context. As the Washington Post reports, Edith Windsor and Thea Spyer of New York had been together 42 years when they legally married in Canada in 2007. When Spyer died in 2009, Windsor had to pay $363,053 in federal estate taxes to the IRS because DOMA prevents the federal government from recognizing her as a surviving spouse.
If DOMA does not pass constitutional muster, Stephen C. Harnett explains that other benefits to be extended to same-sex couples include the right to file a joint tax return, the ability to give money to each other without payment of a gift tax, and social security survivor benefits, among others.
For same-sex couples in California, the ruling on the challenge to Proposition 8 should steady the legal limbo created in 2008. Recently, the 9th Circuit Court of Appeals held that the 2008 ballot measure, which made same-sex marriage illegal there through an amendment to the Golden State’s constitution, is unconstitutional. The marital status of thousands of same-sex couples who legally married in California prior to 2008 remains uncertain until the Supreme Court issues an opinion.
Currently, estate planning for same-sex couples is a minefield because of different and sometimes conflicting state and federal laws. While a couple may be legally married under state law, they may be considered legal strangers under federal law.
Depending on the outcome of these cases, estate planning for same-sex couples should become less complicated. Keep an eye for the Supreme Court’s opinions in the Proposition 8 case and in Windsor, expected in June.