Edie Windsor and Thea Spyer entered into a committed relationship in 1963. In 1993 they registered as domestic partners in New York City, when that option became available. They married in 2007, in Canada, which then permitted gays and lesbians to marry. Spyer died in February 2009. Although the estate passed to Windsor, the marital deduction was not available, and a $363,053 estate tax was paid. Windsor sued for recovery of the estate taxes, arguing that her marriage must be respected for estate tax purposes under the equal protection clause of the U.S. Constitution. In addition, she argued that the definition of “marriage” under the Defense of Marriage Act (DOMA) must be unconstitutional.
Windsor won on all counts, in all courts, most importantly in the U.S. Supreme Court in June. The Court announced that the definition of marriage is purely a state matter, and whatever definition a state adopts must be respected by federal law. Accordingly, Windsor is entitled to a full refund of estate taxes paid, with interest, because the marital deduction should have been available to Spyer’s estate.
When a statute is declared unconstitutional, it is void from enactment. That means Windsor’s victory isn’t just for herself and future same-sex married couples, it applies retroactively to any married couple that was denied a marital deduction. As a practical matter, the statute of limitations will cut off relief after three years in most cases.
Estate planning implications
The expansion of the amount exempt from federal estate tax to $5 million (inflation-adjusted to $5.34 million in 2014) has made planning for the federal estate tax irrelevant for the vast majority of estates. In part that is because, for married couples, the amount excluded from tax goes to at least $10.68 million with the portability of the marital deduction. Still, that doubling effect could be important to wealthy same-sex married couples, and it is now available to them if they reside in one of the states that recognize gay marriage.
What happens if a gay couple is legally married but later moves to a state that doesn’t recognize their marriage? Regulatory guidance will be needed from the IRS. Some observers expect the IRS to take an expansive view; that is, once a marriage is recognized for federal tax purposes it always will remain recognized. But that is not yet certain.
A trust for an adult child routinely may give the child the power to appoint trust property to the child’s spouse, or it may give a spouse an interest in the trust. Such a provision may be interpreted to include same-sex spouses in relevant jurisdictions. The trust grantor may want to clarify that this is the intended result, if it is, in fact, so intended.
© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.