Until recently, and even if they were married in a state that recognizes same sex marriage, married same sex couples were treated differently under federal law than heterosexual married couples. On June 26, 2013, the Supreme Court changed that by striking down the Defense of Marriage Act (“DOMA”) as unconstitutional. The decision in U.S. v. Windsor split the Court 5-4 and will surely be hailed as one of the most significant civil liberties victories in the history of the United States.
The estate planning implications of this decision are immense as married same sex couples can now take advantage of a federal estate tax provision that previously was only available to married heterosexual couples. In fact, the ruling in U.S. v. Windsor specifically addressed the estate tax calculation for a married same sex couple. These couples can now benefit from the application of the federal marital deduction, which is a deduction that allows assets to pass to a surviving spouse free of estate tax regardless of the amount. It may also be possible to amend a recently filed federal estate tax return to take advantage of this change. Similarly, married same sex couples can also now pass assets to each other with no federal gift tax consequences.
With the striking down of DOMA, same sex married couples will now enjoy various federal income tax provisions that their heterosexual counterparts have enjoyed all along. It will increase their ability to contribute to an IRA for a non-working spouse, and it will allow them to make larger donations to charity due as their combined higher income providing an increased charitable giving deduction. Married same sex couples will also be allowed to file joint federal income tax returns, regardless of their state of residence, which will be beneficial to some couples.
Health care benefits have also been impacted. With respect to obtaining Medicaid benefits to pay for nursing home care, the rules that protect spouses who remain at home in the community will now apply to same sex couples. This includes the ability to transfer assets between the spouses without penalty. If the spouse in the nursing home has assets greater than the asset limit for the institutionalized spouse, they can be transferred to the community spouse, who will be able to keep them as long as they do not exceed the applicable asset limit for the community spouse. Without this protection, the spouse in the nursing home could not transfer assets to the spouse in the community without incurring a penalty period during which time Medicaid benefits would not be paid.
Another massive impact for older same sex married couples is that they will have the same rights to Social Security spousal benefits as heterosexual married couples. Social Security’s survivor benefits are a lifeline for many widows and/or widowers, as without them, the surviving spouse would lose a significant income stream upon the death of their spouse. If you are now eligible to apply for Social Security spousal benefits, you should be sure to do so.
It is important to note that there is no impact on unmarried couples, whether same sex or heterosexual, except that perhaps the reasons to marry have increased for same sex couples. It is also important to realize that this decision only impacts federal law. It does not change discriminatory state laws that exclude same sex couples from enjoying state given marriage rights. This is not an issue here in Massachusetts where same sex marriage is legally recognized.
It will take some time for all of the ramifications of this decision to be seen. It is surmised that due to the administration’s opposition to DOMA, it will also treat as married under federal law any same sex couple married in a state that recognizes same sex marriage who then moves to a state with a defense of marriage act, such as Florida. Whether this is true remains to be seen as the court did not rule on these provisions of DOMA in this decision.
At this time, married same sex couples should revisit their estate planning documents to take advantage of the changes. In addition, an update of beneficiary designations may be in order. With the protection of federal law, same sex couples may ultimately achieve equality with their heterosexual counterparts in the eyes of federal, state and local municipalities; however, it will be necessary for them to act to ensure that they take full advantage of the benefits now available..