Same Sex Marriages and Planning…

The Supreme Court has officially struck down Article 3 of the Defense of Marriage Act (DOMA), which affects same sex married couples who were legally married during the brief time the state allowed same sex marriages.  Additionally, the Court determined that proponents of the controversial Proposition 8 do not have standing to defend the voter-approved initiative, which effectively reinstates the California court’s determination that Proposition 8 is unconstitutional.  As a result, same sex marriages are set to resume in California shortly.

For the majority of estate planners, the rulings will have no effect on their plan.  However, for same sex couples, the effect may be dramatic.  For the case in point, the DOMA case centered around the marital deduction for estate tax purposes. The surviving spouse in a lesbian married couple paid $363,053 in estate taxes as a result of DOMA.  She sued for a refund alleging that the estate tax would be deferred pursuant to the marital deduction, which allows property passing to a surviving spouse to be free from estate tax, except that DOMA did not allow her otherwise valid marriage to be recognized by the federal government.

Similarly, same sex married couples will be able to engage in more financial planning as a result of the decision.  For example, IRAs were previously only able to be rolled over for a surviving spouse.  However, same sex couples will now qualify to roll over their accounts.  Similarly, spouses will now be entitled to be the sole beneficiary of qualified retirement plans.

Similarly, the Court’s decision impacts survivor’s benefits for social security purposes and for military members.  Since the repeal of “Don’t Ask, Don’t Tell,” military members have been allowed to serve openly, but DOMA still prevented full access to military benefits.  Even now, certain benefits remain questionable; the actual statute that covers veterans benefits defines marriage in the same way that DOMA did (i.e. heterosexual marriage), but is not defined by DOMA per se.  Although the difference is technical it is, at least temporarily, significant.  As a result, it is possible that individuals who apply for benefits, such as the VA Aid & Attendance Non Service Connected Disability Benefit will be denied initially.  There are several outstanding cases, however addressing the issue and it seems clear that the VA definition of marriage is on the way out as well.  The effect may be dramatic for those veterans who may benefit from a QVap Trust, but have not yet created one due to the federal government’s non-recognition of their marriage.
DOMA touched on many federal statutes, and unraveling its full effects will take some time.  The matter is more complicated in states where same sex marriage is not legal.  However, in California, where same sex marriages will begin shortly, speaking with a knowledgeable attorney about how it affects your estate plan, taxes, and other aspects of your financial future is an important part of this momentous event.

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