It’s been quite some time since a Supreme Court ruling was watched so closely as the federal Defense of Marriage Act, or DOMA, has been. Now, though, a few weeks in, how does the future look for New York same sex couples when it comes to estate planning and even financial planning? This week, we take a look at a few of those dynamics.
DOMA Across the Marital Board
First, it’s important to remember that many of the details in the Supreme Court’s ruling are applicable across the board. Many haven’t realized that this wasn’t a ruling for same sex couples only. In fact, many estate planning attorneys are already making distinctions, but they’re focusing on what the ruling means for any New York married couple.
The ruling has changed the way estate planning is handled for affluent couples – same sex or otherwise. There’s a crucial tax break that affects married couples. The marital deduction allows spouses to move as many assets as they wish to each other with no federal estate taxes or gift taxes. Until DOMA, the verbiage in the law defined marriage as a “legal union between one man and woman. A spouse was defined as a person of the opposite sex who is either a husband or wife. That meant same sex couples were paying inheritance taxes above the tax free limits.
The Estate Planning Lawsuit That Changed Everything
The case, United States v. Windsor, sought a refund for Edith Windsor who paid more than $360,000 in estate taxes following the death of her partner, Thea Spyer. Windsor believed those two provisions in the definitions of marriage and spouse violated the Equal Protection Clause of the Constitution. Both the New York District Court and the Court of Appeals for the Second Circuit agreed with her assertations and ordered the tax refund be made.
In one fell swoop, thousands of federal regulations and laws were suddenly applicable to same sex couples. There are many federal benefits for estate planning, including the marital deduction. Surviving spouses of same sex marriages can now take advantage of any unused estate taxes. Currently, that exclusion is $5.25 million. Also, any gift above the annual exclusion will affect the lifetime gift exclusion. If that limit is surpassed, surviving spouses will then be gift taxed up to 40%.
Then there’s “gift splitting” as an option. This allows couples to make lifetime gifts of up to $10.5 million, provided they both transfer their exclusions.
Estate Tax Returns
The estate executor will be required to transfer the unused benefits to named survivors. From that point forward, those assets can be used in the same traditional ways that married heterosexual couples are accustomed to. There’s also another mandatory caveat: an estate tax return must be filed right after the death of the first spouse. Keep in mind – this is a requirement even if there exists no outstanding taxes due.
The window in terms of a timeframe is nine months; however, one extension can be made for no more than six months after the nine months have lapsed. This is absolutely crucial in that if a surviving spouse drops the ball, he or she loses portability rights.
Perhaps the best advice for same sex married couples in New York is to contact an estate planning attorney who can ensure all of these delicate intricacies are handled both legally and completely. The possibility of missing something, especially since there’s such a wide learning curve, is certainly a realistic concern. And this is just the tip of the iceberg. Legal help with your financial planning can go a long way towards peace of mind.