Dec 18, 2012

Supreme Court to rule on DOMA: estate planning implications

On December 7 the Supreme Court decided it would hear two cases related to same-sex marriage. 

One of those cases, U.S. v. Windsor, challenges Section 3 of the federal Defense of Marriage Act (DOMA). Passed in 1996, DOMA defines marriage as being solely between a man and a woman for the purposes of federal programs and laws, including estate and gift taxes, preventing the federal government from extending to same-sex couples who are married in states in which it is legal, the same benefits it extends to opposite-sex married couples. 

The Supreme Court's ruling will have significant estate tax implications for same-sex married couples. Consider the background of the case of U.S. vs. Windsor:

Edith Windsor and Thea Spayer were were married in Toronto, Canada in 2007.  They were New York residents. When Spayer passed away in 2009, they had been together 40 years. Spayer left her entire estate to Windsor. Under the federal tax code, opposite-sex spouses may pass an unlimited amount to one another without incurring estate tax. Windsor, however, was required to pay estate tax of $363,000. When the IRS refused her request for a refund, stating that she was not a "spouse" as defined by Section 3 of DOMA, Windsor filed suit in the U.S. District Court for the Southern District of New York, challenging the  constitutionality of Section 3. The court sided with Spayer, and that decision is now being challenged by the Bipartisan Legal Advisory Group, which is defending the case.

At the moment, the keenest legal minds cannot agree on how this case might be resolved. However it plays out, the result will have significant repercussions for same-sex married couples. We'll report back to you when we get a decision.

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