Same Sex Estate Planning

IRS Notice 2014-19: Further Recognition for Same-Sex Married Couples

As we have discussed in previous posts, the impact of the United States v. Windsor case has been broad. This landmark ruling invalidated provisions of the Defense of Marriage Act, paving the way for recognition of same-sex marriages when it comes to federal tax purposes. Earlier this month, the IRS issued Notice 2014-19, expanding the reach of Windsor to federally qualified retirement plans. Prior to this ruling, there was little clarity regarding the IRS’s position on whether same-sex spouses were considered “spouses” in the eyes of a qualified plan—especially in states that do not currently recognize same-sex marriages. Notice 2014-19 dispels any confusion: flatly stating that as far as the IRS is concerned, same-sex spouses are covered by the benefits afforded heterosexual spouses by these retirement plans. Plans that do not currently cover same-sex married spouses will need to be amended to reflect the new, federal guidelines enacted by this notice. Benefits that are now extended to same-sex spouses include survivor annuities, payment of benefits after the death of a spouse, and some employee stock ownership privileges. The Notice also refreshes the reader’s memory about how a same-sex marriage can be recognized by the federal government, stating that the IRS: “adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.” This is a comparison of the two ways same-sex marriages are either recognized or disregarded, the “state of celebration” approach...

DOMA: Perry Doesn’t Address State Law Concerns

DOMA: Perry Doesn’t Address State Law Concerns As discussed in previous posts by this blog and numerous other commentators, the landmark Supreme Court case United States v. Windsor resulted in the Defense of Marriage Act (commonly abbreviated as “DOMA”) being ruled unconstitutional, causing same-sex married couples to be federally recognized. What many people do not know is that another case, Hollingsworth v. Perry, was not decided by the Court due to procedural reasons. The Perry case could have had the same effect on state law as Windsor had on federal law—invalidating state laws that did not recognize same-sex marriages. The Court’s refusal to rule on the merits of Perry allows state courts to have the ultimate decision about whether state laws that ban or fail to acknowledge same-sex marriage are constitutional. Because the states have no federal precedent to obey, considerable uncertainty exists about how same-sex couples are treated within individual borders. The lack of uniformity means that despite being recognized for federal purposes, a same-sex married couple can be disregarded within a state depending on local law. This is a highly variable situation, as Paul Ferrara, Senior VP of Wealth Management at US Trust, aptly describes in the following scenario: “Imagine a same-sex married couple travels by train from Boston to Washington, DC. The train made stops in Providence, New Haven, New York, Newark, NJ, Philadelphia, Wilmington, Baltimore and then Washington. If the couple disembarked the train in Providence, New Haven, New York, Baltimore and then Washington, their marriage would be recognized. However, if they disembarked in Newark, Philadelphia or Wilmington, the marriage would not be recognized. The...

DOMA and Estate Planning

Recently the United States Supreme Court ruled on United States vs. Windsor—a case that argued the constitutionality of the Defense of Marriage Act (DOMA). DOMA’s Section 3 controversially defined a “marriage,” for federal tax law and benefits, as only between one man and one woman, and defined “spouse” as a person only of the opposite sex. Section 2 of DOMA also stated that states that did not allow same-sex marriages did not have to recognize those marriages from other jurisdictions. The Windsor court struck down Section 3 as unconstitutional—removing it from the statute as though it had never existed. Section 2 was not ruled on, leaving some gray area when it comes to states’ recognition of out-of-state same sex marriages. The IRS, following the decision, was decidedly less equivocal—issuing Revenue Ruling 2013-17, stating that same-sex couples, legally married in a state or foreign jurisdiction that authorizes the marriage, will be treated as married for all federal tax purposes. In California, Hollingsworth v. Perry held that Proposition 8, which banned same-sex marriages in the state, was also unconstitutional—allowing California same-sex couples to join into IRS-recognized valid marriages. Notably, this does not apply to civil unions, registered domestic partnerships, or other non-marital relationships, regardless of what rights or privileges are bestowed upon those types of unions by states. So what does this decision mean for same-sex couples in an Estate Planning context? Prior to the Windsor decision, same-sex couples historically faced challenges to planning their estates, including: Persistent need to define property rights by contract. High chance of Will contests. Difficulty enforcing inheritance rights of adopted children. Simply, the IRS ruling...