The Heckerling Institute on Estate Planning, held every January, is the nation’s leading conference for estate planners. This year’s most-discussed topic was big changes in planning for same-sex couples.
The discourse focused on last year’s major decision of United States v. Windsor. In Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) which defined “marriage” and “spouse” for federal purposes as only applicable to heterosexual couples. The result is that a marriage between any two persons now will be recognized under federal law if it is recognized under the law of the state where it occurred.
The practical result is that same-sex married couples now have access to federal estate and tax planning tools. This includes use of the marital deduction, portability, disclaimers, joint income tax returns, grantor trusts, spousal rollover of qualified retirement accounts, joint ownership of property, split gifting to maximize annual gift tax exemption, marriage settlement agreements, and GST transfer planning (i.e., reverse QTIP).
On the other hand, same-sex married couples will feel the impact of the “Marriage Penalty” on their tax rates, mortgage interest deductions, and more, just like heterosexual married couples.
Although the Windsor decision has clearly brought about significant change, it did not invalidate DOMA as a whole. Instead, it left intact Section 2 of DOMA, which allows the states, U.S. territories, and Indian Tribes to refuse to recognize same-sex marriages performed in other states, territories, or tribes. As a result, the lack of uniformity of laws among the states will continue to create issues for same-sex couples to navigate with the assistance of tax and estate planning professionals.
The focus at Heckerling was on the tax and financial implications of these new laws. Stay tuned for our “Relationship Series” where we will focus on the more personal and human side of planning in different relationships.