In United States v. Windsor, 570 U.S. 12 (2013), the U.S. Supreme Court held that the portion of the Defense of Marriage Act (DOMA) which states that marriages are only valid between one man and one woman unconstitutionally violates the equal liberty protection afforded to all citizens by the Fifth Amendment. The U.S. Supreme Court's ruling means that the estate tax planning that we do for our clients in same-sex marriages will now be aligned with the estate tax planning that we do for heterosexual married couples.
New Hampshire passed legislation authorizing same-sex civil unions effective on January 1, 2008. In January of 2010, same-sex marriages became legal in New Hampshire. (See the November 2011 blog article on Estate Planning for Same-Sex Couples.) While same-sex married couples were afforded the protections of spouses under state law in 2010, important federal tax benefits extended to heterosexual married couples were not available until now. For example, under the federal gift and estate tax law, a person can transfer an unlimited amount of assets to his or her U.S. citizen spouse. Those transfers qualify for the unlimited marital deduction and are not taxable.* The portability provisions of the estate and gift tax law that were made permanent under the American Taxpayer Relief Act of 2012 will now be extended to same-sex couples. Portability allows spouses to share their estate tax exemptions. Under this law, if a spouse dies without fully utilizing his or her estate tax exemption, an estate tax return may be filed to identify the unused portion of the exemption which can be later used by the surviving spouse. (See the February 2012 blog article on Portability of the Gift and Estate Tax Exemption.)
In addition to the federal gift and estate tax benefits afforded to same-sex couples as a result of the Supreme Court's ruling, many other tax benefits afforded to heterosexual couples are extended. For example, same-sex spouses can now roll over a 401(k) or IRA inherited from a spouse and continue the income tax deferral on those assets in a manner similar to his or her own retirement accounts. Same-sex couples can file joint income tax returns going forward and they may be able to amend returns filed for open years, file joint returns and apply for a refund if filing joint returns would result in lower tax liability. (See the March 2013 blog article on Income Tax Planning for Same-Sex Couples.)
Other non-tax benefits under federal law will also apply to same-sex couples including Social Security, the Family and Medical Leave Act, and the Employee Retirement Income Security Act.
Same-sex couples who are unmarried and living in New Hampshire will only be afforded the benefits afforded to spouses under federal law if they get married. It is unclear how a couple who resides in a state that does not recognize same-sex marriage will be treated if the couple is married in New Hampshire and then returns to the state of their residence. Cases involving these issues will most certainly work their way through the state and federal court system and we can expect legislation to follow. If you would like to meet with one of us to discuss the application of the gift and estate tax laws to your situation, feel free to call the office and schedule an appointment.
*There is a limit to the amount that can be transferred to a non-citizen spouse annually ($143,000 for 2013) with no gift tax consequence. Transfers to a trust for a non-citizen spouse can qualify for the unlimited marital deduction provided that certain restrictions are included in the trust.