Estate Taxes: Gay Married Couples Finally Get a Level Playing Field

For many years I have advised gay clients to include a marital deduction provision in their core estate planning documents in the event the law were to develop to the point of allowing this deduction for gay married couples.  That time is now approaching with much greater clarity and momentum,

A recent June 6 Order of a New York federal District Court in a case filed by gay widow Edith Windsor granted Ms. Windsor’s claim for a federal estate tax refund of $350,000.  This is the estate tax Ms. Windsor’s late wife’s estate paid as a result of the IRS denying the estate’s marital deduction.  Here is the June 6, 2012 federal District Court Order.

This estate tax deferral benefit of the federal marital deduction has been available to married heterosexual couples under federal tax law (and under most state laws) since the 1948 enactment of the marital deduction.  The federal marital deduction is currently within Section 2056 of the Internal Revenue Code.  

The widespread and typical use of this marital deduction has enabled heterosexual married couples to delay the burden of costly estate tax until the death of the second spouse, regardless of the size of the first-to-die spouse’s estate.

At issue was DOMA (the federal Defense of Marriage Act) and whether DOMA prevented the marital deduction in Ms. Windsor’s situation by not recognizing Edith Windsor and her late wife’s marriage under Canadian law. 

What makes this Edith Windsor case particularly compelling is that the U.S. Department of Justice last year expressly refused to enforce DOMA, thus, correspondingly, advancing no objection to the marital deduction in this Windsor case.  

In response to the DOJ’s refusal to enforce DOMA, the Bipartisan Legal Advisory Group of the U.S. House of Representatives (“BLAG”) intervened in Ms. Windsor’s case so as to defend the constitutionality of DOMA and, also correspondingly, deny the estate’s marital deduction.

As set forth in the above District Court Order, the District Court concluded DOMA is unconstitutional as applied to Ms. Windsor, thus resulting in the inability of the IRS (and BLAG) to deny the marital deduction for Ms. Windsor’s wife’s estate.

For additional reading, here is the legal brief Edith Windsor’s lawyers filed on her behalf. This is very well written and worth the time to read.  Note that Ms. Windsor was represented by a top-notch New York law firm Paul, Weiss, Rifkind, Wharton & Garrison, along with the ACLU and the New York Civil Liberties Union Foundation.

The above development further highlights the importance of gay couples continuing to include marital deduction planning in their estate planning documents so as to seek and obtain the benefit of this estate tax deferral.

Ashley Alderman, a lawyer in our Atlanta office, assisted me with this post.  Click here for her law firm bio.

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