How Does DOMA Ruling Affect Your Estate and Tax Planning?
The Supreme Court’s decision in Windsor v. U.S. has effectively struck down Section 3 of the Defense of Marriage Act, also known as DOMA, retroactively. Here are some tax advantages now available to married same-sex couples:
- Filing a joint federal income tax return. This can produce a lower combined tax than filing as single persons
- Re-filing tax returns as “married, filing jointly” for certain recent tax years. This right is lost with the passage of time
- Qualifying for tax-free employer health coverage for the same-sex spouse
- “Stretching out” distributions from a qualified retirement plan or IRA under more favorable rules
- Ability to engage in estate planning that was previously unavailable
Married same-sex couples should consult with knowledgeable, estate planning attorneys to form or amend their plans. You may take advantage of favorable estate and gift tax planning opportunities, including:
- Using the marital deduction for lifetime, gift tax-free transfers to the other spouse
- “Splitting gifts” when one spouse wants to make gifts in excess of the annual exclusion
- Planning for an unlimited marital deduction – and thus avoiding federal estate tax – for all amounts transferred to the surviving spouse from the first spouse to die
- Electing to transfer the deceased spouse’s unused exclusion amount to the surviving spouse when time and circumstances permit
According to current IRS rules, whether a couple is married is determined by state law where they currently reside. A same-sex married couple now living in a state which does not recognize same-sex marriage may not be considered married for federal tax purposes. The IRS will issue guidance on this subject.