DOMA’s downfall means you might have to refresh your estate plan
Amid much fanfare and hopefully expectations, the U.S. Supreme Court struck down the federal Defense of Marriage Act in a ruling issued on June 26. As you probably already know, DOMA prohibited the federal government from recognizing same-sex marriages performed under the laws of states that allowed it, resulting in the withholding of many important federal benefits from same-sex couples.
The DOMA decision has been hailed as a broad and important victory for supporters of equal rights for same-sex couples, and indeed, the ruling does represent a significant moral and political event. However, the U.S. Supreme Court’s decision on DOMA is also a court case that will have many practical, real world implications. One area if the law that will be impacted is estate planning for same-sex couples.
Same-sex couples can now take advantage of unlimited transfers between spouses
With DOMA dead, same-sex couples who were validly married under the laws of their state will now be considered married at the federal level. When it comes to estate and gift tax laws, this can mean significant savings.
The federal tax code says that transfers of property between spouses are not subject to estate or gift taxes – and there is no “amount limit” to this freedom of transfer between spouses. This has estate planning implications going forward, but could also mean refunds on any federal estate or gift taxes paid pursuant to a filing within the permitted three year period to file amended tax returns. The IRS may even extend the normal three year limitation for same-sex couples based on the recently announced unconstitutionality of DOMA; tax law experts are eagerly awaiting further guidance from the agency.
DOMA struck down because of estate planning inequities
In fact, the DOMA decision was rooted in a same-sex couple’s estate tax controversy. In the controversy from which the case sprang, one member of a same-sex couple passed away and the other inherited her assets – but only after being subjected to a hefty estate tax on the amount that exceeded the general federal estate tax exemption.
Had the federal government recognized the same-sex marriage, the partners would have been able to take advantage of the Revenue Code provision that permits spouses to inherit from one another tax-free. The fact that the federal government now recognizes same-sex marital unions is thanks, at least in part, to a same-sex couple who wanted access to the same estate planning benefits available to their straight counterparts.
Talk to an estate planning attorney to ensure you realize the benefits of DOMA decision
The DOMA decision is great news for same-sex couples, who now stand to retain a greater proportion of their wealth. However, it is important to note that same-sex couples only stand to realize the full estate and gift tax benefits of the decision by actively planning for the future disposition of their assets.
If you are married to a same-sex partner or intend to get married in the near future, you need estate planning that is tailored to the changing status of same-sex couples under federal law. Talk to an estate planning attorney with experience representing married same-sex partners to find out how you can take advantage of the tax savings you may now be eligible for pursuant to the new DOMA ruling.