U.S. Supreme Court Could Ease Estate Planning for Same-Sex Couples

Recently, the U.S. Supreme Court heard arguments that could put a stop to some of the hoops that wealthy same-sex married couples face during estate planning. Currently, heterosexuals and their spouses can transfer as much money as they want during their lives and after death without worrying about paying any gift or estate taxes. Federal law creates this deduction. However, the deduction is not available to same-sex couples even in states that permit same-sex marriage.  Section 3 of the federal Defense of Marriage Act (DOMA) prohibits the deduction from applying to same- sex couples. The effect of this section requires same-sex couples to pay estate taxes on inheritances from their partners when the inheritance rises above the tax- free amount. There are roughly 1,000 federal lifetime or after death benefits available to heterosexual spouses that are denied to same-sex spouses.

The arguments being heard by the Supreme Court are based on Edith Windsor’s case. Edith Windsor was partners with Thea Spyer for over 44 years. In 2009, Thea passed away and left Windsor a large portion of her assets. However, because DOMA does not recognize marriages between same-sex couples Windsor ended up paying an estate tax for $363,053. As a result, Windsor filed a lawsuit alleging DOMA violates Equal Protection. Both lower courts agreed and held the funds should be returned.

Now, the U.S. Supreme Court will decide DOMA’s constitutionality and affirm or reverse the lower court ruling. Reports on the oral arguments imply that five justices are leaning toward holding DOMA’s definition of marriage unconstitutional. Should the court rule that DOMA’s marriage definition violates equal protection all the federal benefits available to heterosexual spouses would extend to same-sex couples in states where same-sex marriage is recognized. Additionally, it would ease the difficulty many estate planners face when planning affluent same –sex couples estate. Instead, of creating complicated trusts for tax savings they could take advantage of the many federal benefits that have existed for heterosexual couples in the past.

See Deborah Jacobs, High Court Ruling On Same- Sex Marraige Could Alter Estate Planning For Couples, Forbes.com, Mar. 27, 2013.