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Estate, Tax and Financial Planning for Same-Sex Couples After the Fall of DOMA
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In 1996, the U.S. Congress enacted the federal Defense of Marriage Act (also referred to as DOMA). Section 3 of DOMA defined marriage as “only a legal union between one man and one woman as husband and wife and word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife…” Further, Section 2 of DOMA authorized each state to deny marriage and similar marriage-type relationships for same-sex couples, regardless of whether they were legally performed in another state or country.

DOMA had the effect of denying more than one thousand federal rights and benefits to same-sex couples who were legally married – rights that were otherwise available to opposite-sex married couples, including social security benefits, veteran benefits, advantageous income tax rates and benefits (though sometimes tax burdens are created as well), and estate and gift tax deductions.

In June 2013, the U.S. Supreme Court ruled in U.S. v. Windsor that Section 3 of DOMA is unconstitutional and that, because each state has the authority to define marriage, the federal government cannot have a definition of marriage that creates two contradictory marriage regimes within those states that authorize or recognize same-sex marriages. In Windsor, however, the Supreme Court only referred to “lawful marriages,” and did not address marriage-like relationships such as registered domestic partnerships and civil unions.

The IRS provides clarity

While there was little guidance given in the wake of Windsor and how it will affect all federal rights and benefits, the Internal Revenue Service recently provided substantial clarity with respect to the federal tax ramifications of the Windsor decision. On Aug. 29, 2013, the IRS issued Revenue Ruling 2013-17, which provides that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. This ruling also makes it clear that it applies to those legal marriages regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

This means that even in states like Kentucky, Indiana and Ohio that expressly do not recognize same-sex marriages performed in other states, same-sex marriages that were performed in states authorizing same-sex marriages will be treated the same as opposite-sex marriages for federal income tax purposes.

Married same-sex couples should consult their tax advisors as soon as possible to determine how this ruling will affect them, and whether they should file amended tax returns for prior years.

Finally, Revenue Ruling 2013-17 explicitly states that it does not apply to registered domestic partnerships, civil unions or similar marriage-like relationships recognized under state law. This means that same-sex couples who are in a marriage-like relationship will still be treated as single taxpayers for federal income taxes.

Other guidance

In addition to Revenue Ruling 2013-17, other limited guidance which has been provided includes the following:

  • The federal Office of Personnel Management, through Benefits Administration Letter 13-203, and the Pentagon have ruled that all legally married employees will have the same benefits (health, life insurance, disability, etc.) regardless of their state of residence.
  • Same-sex couples in recognized marriages will now generally receive employer-provided benefits with the same tax implications as for opposite-sex couples.
  • According to Department of Labor Technical Release 2013-04, same-sex couples in recognized marriages will have the same spousal rights under ERISA-governed plans (e.g., 401(k) and other employer provided retirement plans), as those afforded to opposite-sex married couples.

We expect that other federal agencies will release guidance in the future to clear up any issues with respect to the benefits and rights provided by those agencies. The president has directed federal agencies to issue guidance and tasked the Department of Justice with ensuring swift implementation.

Planning still needed for all same-sex couples

It seems clear that married same-sex couples who live in states that recognize same-sex marriage will now be on the same footing as opposite-sex married couples. However, those couples will still need estate, tax and financial planning for the same reasons that opposite-sex married couples need to plan – to provide certainty and stability.

For all other same-sex couples, because Windsor did not address Section 2 of DOMA, states may still refuse to recognize same-sex marriages performed in other jurisdictions. This means that married same-sex couples who live in states that do not recognize same-sex marriages are now in a complicated position where they are treated as married under federal laws, but may not be entitled to any similar treatment under state law. Further, while Windsor and Revenue Ruling 2013-17 have solved some issues for same-sex couples who are legally married, there are still many same-sex couples who have no legal relationship or are in a civil union or registered domestic partnership, and are unlikely to receive any benefit by the Windsor ruling.

For unmarried same-sex couples, including those who are in a civil union or registered domestic partnership, estate, tax and financial planning takes on even greater importance. Because unmarried same-sex couples may have no legal rights compared to married opposite-sex couples under state law, planning will help address the uncertainties surrounding their relationships, such as:

  • Who will make financial decisions on their behalf if they are disabled?
  • Who will make health care decisions on their behalf if they are disabled?
  • Who will take care of their minor children?
  • How will the day-to-day expenses be provided for if one person dies?
  • Who inherits the deceased person’s property?
  • Who will administer their estate?

While the Windsor decision and subsequent IRS guidance have given some same-sex couples the same rights and benefits as opposite-sex married couples, there are still many uncertainties and questions that will need to be addressed. It is important to consult with attorneys, accountants and other advisors on the type of estate, tax and financial planning best suited for each person or couple in light of recent changes.

If you have questions about how these recent developments may affect you or your family, please contact a member of Bingham Greenebaum Doll LLP’s Estate Planning Practice Group.

DISCLOSURE REQUIRED BY CIRCULAR 230. This Disclosure may be required by Circular 230 issued by the Department of Treasury and the Internal Revenue Service. If this article, including any attachments, contains any federal tax advice, such advice is not intended or written by the practitioner to be used, and it may not be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Furthermore, any federal tax advice herein (including any attachment hereto) may not be used or referred to in promoting, marketing or recommending a transaction or arrangement to another party. Further information concerning this disclosure, and the reasons for such disclosure, may be obtained upon request from the author of this article. Thank you.



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