DOMA Decision and the Impact on Estate Planning

In a groundbreaking U.S. Supreme Court decision, United States v. Windsor, the Supreme Court decided that Section 3 of the Defense of Marriage Act (i.e. DOMA) was unconstitutional. To read a summary of the decision, check out this page.

Section 3 defined “marriage” to be between a man and a woman for Federal benefits. The result of Windsor is that same-sex married couples will now be treated as spouses for purposes of numerous Federal statutes.

With regards to estate planning benefits, the following benefits will now be afforded to same-sex couples.

(i.) Deferring income taxes where a spouse inherits a deceased spouse’s IRA or other qualified retirement plan.

(ii.) Transferring wealth, either during life or at death, from one spouse to the other spouse without incurring a transfer tax.

(iii.) Deferring estate taxes when a spouse passes away.

The Windsor decision does not legalize same-sex marriage and it doesn’t hold that same-sex couples have a constitutional right to get married. However, the decision opened the door for same-sex married couples to enjoy many federal tax-related benefits (not just the benefits mentioned above) that were previously available only to marriages between a man and woman.

Other noteworthy estate and gift tax benefits that can now be accessed by same-sex couples include:

(iv.) The ability to split gifts. Gift splitting allows a taxpayer to basically double their annual exclusion (i.e. $14K in ‘13) and lifetime exemption by treating the gift as having been made one-half by their spouse.

(v.) The benefits of portability. Portability is a pretty new concept which allows the unused gift and estate tax exemption amount of a deceased spouse to be absorbed and added to the exemption amount of the other spouse. Upon the death a spouse, if no exemption amount has been used, portability essentially doubles the surviving spouse’s exemption amount.

For people in same-sex marriages who have engaged in estate planning, or for those couples who have held off on an estate plan until there was more certainty in the law, it is strongly advised to speak with an estate planning attorney to discuss the various techniques and benefits now available after the Windsor decision.