DOMA

The U.S. Supreme Court’s Decision in U.S. v. Windsor and Its Effect on Estate Planning

On June 26, 2013, the United States Supreme Court issued an opinion, U.S. v. Windsor, in which it struck down a major part of the Defense of Marriage Act (DOMA) as unconstitutional because it denies same sex couples equal protection under the law in violation of the Fifth Amendment.  In that case, Edith Windsor, who was married to her same sex partner in New York, where the couple also resided, and which recognizes full marriage rights for same sex couples, was denied the opportunity to claim the marital exemption from federal estate taxes upon her partner’s death based on the definition of marriage under Section 3 of DOMA.  This Section defines marriage for federal purposes as “only a legal union between one man and one woman.” 1 U.S.C. § 7.  The U.S. Supreme Court, however, in a 5-4 decision determined that Section 3 of DOMA unconstitutionally denied Edith Windsor from taking advantage of the estate tax marital exemption, which would have been available to opposite sex married couples.  This thus violated the Fifth Amendment’s directive for equal protection under the laws by singling out and demeaning a certain class of people – same sex couples.  The Court also indicated that this provision interferes with the states’ power to regulate marriage.  Therefore, the Court struck down this section of DOMA.  Windsor, No. 12-307 (U.S. 2013).  For further information on the Windsor decision, see the article, “Supreme Court strikes down Defense of Marriage Act in estate tax case” at http://www.journalofaccountancy.com/news/20138222.htm.  See also the article, “The Same Sex State Death Tax Trap Post DOMA” at  http://www.forbes.com/sites/ashleaebeling/2013/07/01/the-same-sex-state-death-tax-trap-post-doma/.

The effect of this ruling is that legally married same sex couples can now claim the same federal benefits and marital tax exemptions as opposite sex married couples can.  It remains unclear, however, whether federal benefits will be available to same sex couples who do not live in a state that recognizes same sex marriage.

What this means for estate planning is that the same estate planning tools and techniques utilized in opposite sex couples’ estate plans to minimize the federal estate tax owed may be used in same sex couples’ estate plans in states that allow same sex marriage.  In states that do not recognize same sex marriage, however, these estate planning techniques would not be effective and same sex couples in those states would not be able to avoid estate taxes in that way.

In Wisconsin, though domestic partnerships are recognized between same sex couples, same sex marriage is not.  It is therefore uncertain whether same sex couples would be able to take advantage of the federal estate tax marital exemption, since these couples cannot be legally “married” in Wisconsin.  We are hoping, however, that both the federal and state governments will provide guidance as to these issues and questions in the near future and will establish processes and procedures that will facilitate the implementation of these new policies.