Same-Sex Couples and Estate Tax

06/11/2012

In late 2010, Edith Windsor filed a lawsuit against the federal government seeking reimbursement for over $363,000 in estate taxes that the estate of her same-sex partner of 44 years had to pay as the result of the death same-sex partner's death.  

At the time of the partner's death, the couple were New York residents.  They were legally married in Canada in 2007.  When the partner died, her entire estate was left to Ms. Windsor.  

Since U.S. federal law does not legally recognize same sex marriages due to the Defense of Marriage Act ("DOMA"), Ms. Windsor's inheritance of her partner's estate resulted in a $363,053 federal estate tax bill. This would not have been the case had Windsor and Spyer been considered legally married under U.S. federal law, since no federal estate taxes would have been owed due to the unlimited marital deduction.

Ms. Windsor paid the estate tax bill (in order to avoid interest and penalties that would accrue during the course of the lawsuit) and then the ACLU filed the lawsuit on her behalf.

On June 6, 2012, the case was decided by United States District Court for the Southern District of New York.  That court declared that Section 3 of DOMA, which bars the federal government from recognizing marriages between same-sex couples who are seeking federal benefits tied to being married, is unconstitutional as it relates to the Windsor case and ordered the government to pay back the taxes paid by Windsor plus interest.

In response to the decision, Ms. Windsor released the following statement through the ACLU: "It's thrilling to have a court finally recognize how unfair it is for the government to have treated us as though we were strangers."

This ruling comes on the heels of two other federal court decisions that have found Section 3 of DOMA to be unconstitutional. If the case is appealed, which is likely, it will be heard by the U.S. Court of Appeals for the Second Circuit.

So how does this case affect the legal rights of married same sex couples? If the case is ultimately upheld after all appeals have been exhausted, then married same sex couples will be able to take advantage of the unlimited marital deduction just as heterosexual married couples can.  This would open the door to a vast array of gift tax and estate tax planning opportunities that were previously unavailable to same sex married couples.