Taxation & Estate Planning

Same Sex Marriage, The Estate Tax & The [Possible] Death of DOMA

By michael

“There is nothing more powerful than an idea whose time has come.” – Victor Hugo

I posted last week about Hawaii having approved civil unions for same sex and couples (and for the rest of us breeders too).  Then the Obama administration one-upped that news by deciding to stop defending DOMA in the federal courts which lead directly to a number of posts and articles out there on the blog-o-nets about how a possible repeal of DOMA may have estate tax implications for same-sex couples.  It gets a little technical but my man Joel Shoenmeyer does a great job of getting us started in his post, DOMA, Same-Sex Marriage, and the Estate Tax.  Joel writes:

Federal estate tax law allows for a “marital deduction” for gifts made to a spouse at death, but the deduction is “equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse.” And, because of DOMA, same-sex married couples were not deemed to have a surviving spouse. This created a larger burden on same-sex married couples with estates subject to tax.

Some commentators have called this additional burden a “Gay Tax.”  FamilyFairness.org writes here:

The Williams Institute of UCLA School of Law has released a study [pdf] that shows that same-sex couples are assessed an average of $3.3 million more in taxes upon the death of their partner than a similarly situated opposite-sex couple. Because estate taxes are set federally, the Defense of Marriage Act prohibits even married same-sex couples from taking advantage of the marital deduction.

The Edith Windsor case, detailed here (and in this NYT article),  illustrates the point:

On November 9, 2010, Ms. Windsor, who shared her life with her late spouse, Thea Spyer, filed a lawsuit against the federal government for refusing to recognize their marriage. In the lawsuit, Ms. Windsor alleged that DOMA violated the equal protection clause of the U.S. Constitution because it recognized marriages of heterosexual couples, but not those of same-sex couples, despite the fact that New York State treats all marriages the same. Edie and Thea were married in Canada in 2007, and were considered married by their home state of New York.

When Thea died in 2009, Edie was the sole beneficiary of Thea?s estate. Because they were married, Thea?s estate normally would have passed to her spouse Edie without any tax. But because the federal government refuses to recognize otherwise valid marriages of same-sex couples due to DOMA, Thea?s estate had to pay more than $350,000 in federal estate tax. Earlier in 2010, Edie requested a full refund from the government. The IRS rejected that claim, citing DOMA.

Full post as published by The Ohio Trust & Estate Blog on February 26, 2011 (boomark / email).