Windsor, DOMA and the Future of Estate Planning For Same-Sex Couples

This past Friday, the United States Supreme Court decided to hear two cases related to the treatment of same-sex married couples.  One of the cases, Windsor v. United States, was brought as a challenge to the Defense of Marriage Act (“DOMA”) which was enacted in 1996.  Under DOMA, regardless of any recognition by states or other jurisdictions, the federal definition of marriage is limited to a marriage between a man and a woman.  This has been detrimental to same-sex married couples seeking equality with their heterosexual counterparts in numerous areas including estate planning and estate tax.

In Windsor, Edith Schlain Windsor sued the United States as the executor of her wife’s estate.  Windsor and her wife were New York residents and married in Canada in 2007.  While New York did not recognize same-sex marriages performed in New York until 2011, it did recognize marriages performed in jurisdictions where same-sex marriage was recognized.  Despite having her marriage recognized by New York, Windsor was denied the federal estate tax marital deduction by DOMA.

In June, the United States District Court for the Southern District of New York held that the section of DOMA defining marriage as being only between a man and a woman was unconstitutional because it violated the equal protection clause of the Constitution.  In September, the United States Court of Appeals, Second Circuit, affirmed this finding and further held that classifications based on sexual orientation are subject to a higher level of scrutiny than previous courts had held.

The arguments for each side at the Supreme Court(scheduled for Spring 2013) will likely track those made at the Court of Appeals level.  The proponents of holding DOMA unconstitutional will likely focus on the heightened scrutiny required for laws based on sexual orientation.  They will also seek to show that marriage is generally decided at the state level and that DOMA, by interfering with a power reserved to the states, overstepped federal authority.   Proponents of retaining DOMA will continue to make the case that sexual orientation is not a suspect class and that the Federal government has a rational basis to legislate the definition of marriage.

If the Court upholds the Second Circuit ruling, the benefits to same-sex couples will be significant.  First, whereas New York couples are currently only entitled to a marital deduction on their New York estate tax, they will be entitled to the same deduction at the Federal level.  Secondly, lifetime transfers between same-sex spouses will no longer be subject to federal gift tax (or use up a portion of a spouse’s lifetime gift tax exemption.  Finally, assuming estate tax portability is retained, same-sex spouses will be able to utilize the remaining portion of their spouse’s estate tax exemption.

It is premature to predict an outcome and the ruling may be limited or broad.  Nevertheless, it appears 2013 will be, at the very least, an interesting year for preparing estate plans for same-sex married couples.

Please contact for more information about estate planning for same-sex couples.