A number of recent federal court decisions have found Section 3 of the Defense of Marriage Act (DOMA) unconstitutional. Writs of certiorari have been filed, and the U.S. Supreme Court is under mounting pressure to rule on whether DOMA’s definition of marriage as being between only a man and a woman violates equal rights protections and federalism provisions of the U.S. Constitution. The federalism arguments relate to the sharing of powers between federal and state governments. While some powers are exclusively federal or shared with the states, others, such as defining marriage, belong solely to the states.1 With the possibility of DOMA being found unconstitutional, estate planning for same-sex couples requires review.  

Here are the issues that practitioners should discuss with their clients.

 

Marriage Status

While marriages between same-sex couples are becoming more common, the types of legally recognized relationships vary among the states. For example, some states allow marriage, while other states allow civil unions or domestic partnerships. In the states recognizing marriage for same-sex couples, the marriage is accepted for state law purposes with the same rights afforded to a heterosexual marriage.2 Civil unions and domestic partnerships, on the other hand, are state specific, and the requirements and benefits differ. Finally, the majority of states and current federal law don’t recognize any of these relationships.3 What has evolved is a patchwork quilt of laws regarding same-sex relationships, with the states not only differing among themselves, but also with the federal government.4

The first step is asking same-sex married clients  the state where they married, when they were married and where they currently reside. Because of the rapid change of requirements for same-sex marriage among the states, it may be preferable, in some cases, to have a client remarry in a state where the laws are now settled as to recognition of same-sex marriage. The state where a couple was married could have certain requirements for out-of-state couples that, if not met, invalidate the marriage.

Currently, the following states and the District of Columbia have legalized same-sex marriage, with two states facing a referendum vote:

 

1. Massachusetts (May 2004)—Massachusetts Supreme Court found same-sex marriage ban unconstitutional; 

2. Connecticut (Oct. 12, 2008)—Connecticut Supreme Court found same-sex couples have a constitutional right to marriage;

3. Iowa (April 2009)—Iowa Supreme Court unanimously found that state law rejecting same-sex marriage was unconstitutional; 

4. Vermont (September 2009)—Vermont became the first state to permit same-sex couples to marry without a court mandate, when the Vermont legislature overrode Governor Jim Douglas’ veto to enact a marriage equality bill; 

5. New Hampshire (January 2010)—The legislature passed and the governor signed the marriage equality bill; 

6. New York (June 2011)—The legislature passed the Marriage Equality Act and the governor signed it; and

7. The District of Columbia (March 2010)—Council of the District of Columbia passed the bill, which was signed by the mayor.5 

 

Maryland and Washington have both passed legislation legalizing same-sex marriage, but face referenda in November 2012.6 Currently, none of the jurisdictions permitting same-sex marriage have residency requirements.

States that permit only civil unions or domestic partnerships are: California, Delaware, Hawaii, Illinois, New Jersey, Nevada, Oregon and Rhode Island. These states typically provide that partners have all the rights and benefits of a marriage, but without the term “marriage” being used.7 Finally, 31 states have constitutional amendments banning same-sex marriage.8

Further complicating matters at the state level, Rhode Island and New Mexico, which don’t allow same-sex marriages, will recognize out-of-state same-sex marriages; California will recognize out-of-state marriages occurring prior to Nov. 5, 2008; while several other states will afford some rights.9 On the other hand, most states with constitutional amendments prohibiting same-sex marriage don’t recognize same-sex marriages or civil unions from other states.10 This means that if a married same-sex couple moves to one of these states, they won’t have state law rights afforded to a surviving spouse, and divorce may be complicated due to residency requirements in the state where the marriage took place.11 For the foreseeable future, irrespective of DOMA, same-sex couples will have to pay close attention to the laws governing same-sex marriage in the state where they are married and their state of domicile.

 

Origin of DOMA

Concern regarding the definition of marriage at the federal level began in 1993, when the Supreme Court of Hawaii determined that denying marriage licenses to same-sex couples may have violated Hawaii’s constitution.12 Congress reacted to the decision in Hawaii in an effort to prevent same-sex married couples from obtaining the same federal rights provided to heterosexual couples.13 On May 7, 1996, Congressman Bob Barr introduced DOMA.14 The law was then enacted with little deliberation. DOMA passed the House 342 to 67 and the Senate 85 to 14. President Bill Clinton signed it into law on Sept. 21, 1996.15 Section 2, Powers Reserved to the States, says:

 

No State, territory, or possession of the United States, or Indian tribe, shall be required to give effect to any public act, record, or judicial proceeding of any other State, territory, possession, or tribe respecting a relationship between persons of the same sex that is treated as a marriage under the laws of such other State, territory, possession, or tribe, or a right or claim arising from such relationship.

 

Section 3, Definition of Marriage, says:

 

In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, the word ‘spouse’ refers only to a person of the opposite sex who is a husband or wife.16

 

DOMA allows states to avoid compelled recognition of same-sex marriages performed in other states and further allows the federal government to ignore same-sex marriages performed in any state.  

 

Issues Created

DOMA has created numerous issues for married same-sex couples, including the denial of:

 

1. Family Medical Leave Act benefits; 

2. Benefits for spouses of federal employees; 

3. Veteran spousal benefits;

4. Equal treatment in taxation of employee health benefits;

5. Equal treatment under spousal impoverishment protections for Medicaid long-term care;

6. Equal treatment in estate, gift and income taxes;

7. Joint income tax filings; 

8. Equal Social Security survivor or spousal benefits; and

9. Equal treatment for bi-national couples.17 (In September 2012, Homeland Security determined that the phrase “family relationship” includes long-term, same-sex couples. While this doesn’t afford same-sex couples the same protections as heterosexual couples, it does allow for consideration of a relationship when making green card rulings.18)

 

Issues created by Section 3 of DOMA have resulted in several lawsuits arguing that the law is unconstitutional. On Feb. 23, 2011, Attorney General Eric Holder advised Congress that the Obama administration believed DOMA to be unconstitutional and that it would no longer defend it in court.19 As a result, Speaker of the House John Boehner announced on May 4, 2011, that the House would take up the defense of DOMA. Recently, the U.S. Court of Appeals for the First Circuit in Massachusetts v. U.S. Dep’t of Health & Human Services, et al. and three U.S. district courts, in Golinski v. Office of Personnel Management, Windsor v. United States and Pedersen v. Office of Personnel Management, found DOMA to be unconstitutional on the bases of equal protection and federalism under the U.S. Constitution.20 Writs of certiorari have been filed in these cases, and the U.S. Supreme Court will likely hear one or more of them. Most notably, the court in Windsor allowed a federal estate tax marital deduction.

 

Drafting Considerations

With the possibility of DOMA being ruled unconstitutional, estate planners should consider providing flexibility and clarity to the estate-planning documents of married same-sex couples. For example:

 

1. Use a family definition provision that identifies the same-sex spouse, including the date and place of marriage. Be sure to include references to the spouse when identifying the individual as a beneficiary.  

2. If there’s potential for estate tax liability, consider drafting alternate dispositive provisions. Make one set of dispositive provisions effective if a marital deduction isn’t allowed and a separate set of dispositive provisions effective if a marital deduction is allowed.  

3. At the death of the first spouse to die, even if the estate of a deceased spouse isn’t federally taxable, file a federal estate tax return to preserve portability of a deceased spouse’s unused exemption.

4. Claim the marital deduction on any gift or estate tax filings, and pay any tax due under protest.

5. Include a savings clause regarding the marital deduction.

6. Ensure that any interests left in trust qualify for a marital deduction. 

 

Marital Deduction Rules

If DOMA is found unconstitutional, then the impact on the federal estate and gift tax returns for same-sex couples would be significant. For example:

 

1. If the surviving spouse is a U.S. citizen, the unlimited marital deduction for estate taxes would apply to same-sex couples, allowing all property passing directly to the surviving spouse to do so without any federal estate tax.21

2. If the surviving spouse isn’t a U.S. citizen, then a qualified domestic trust must be used to obtain an unlimited marital deduction for otherwise disqualified spouses.22

3. If the spouses are U.S. citizens, then an unlimited gift tax deduction is permitted.23

4. For gifts to a non-citizen spouse, the annual exclusion for 2012 is $139,000.24

5. For married couples, jointly held assets are presumed to be held 50/50 for estate tax inclusion purposes. If a couple wants a different allocation, they must be careful with the titling of the asset.

6. Spouses are also permitted to elect to gift split, allowing them to currently give an annual gift of $26,000 to an unlimited number of individuals without worrying about which spouse actually funds the gift.25

7. A qualified terminable interest trust may be used, allowing a deceased spouse to provide for a surviving spouse, while maintaining control of the assets upon the surviving spouse’s death.26

 

Non-Tax Benefits

Same-sex couples will have certain state rights to prevent them from being disinherited and to prevent creditors from obtaining certain assets. These rights differ from state to state. Examples of spousal interests or rights that the surviving spouse may claim are: 

 

1. In community property states, the surviving spouse is entitled to receive one-half of all property acquired by the activity of either spouse during marriage, except property acquired by gratuity. Some “quasi” community property states may treat some of the decedent’s separate property as community property.

2. In all non-community property states, except Georgia, the surviving spouse may elect against the will. The amount varies from state to state, but it’s often one-third of the probate estate or an augmented estate. In some states, the elective share is applied to both probate and non-probate assets, while in other states the election only applies to probate property.

3. An entitlement to the homestead or marital residence is a typical right of the surviving spouse, sometimes even against creditors. In some states, it’s the right to occupy the home for life or a term of years, while in others it’s the right to receive a dollar amount.

4. Some exempt forms of tangible personal property can be protected from creditors and can’t be taken from the spouse by the decedent’s will. This also varies by state. Examples of exempt property include automobiles, household furniture, appliances and personal effects. Most states will limit the value of property that’s exempt.

5. Some states permit family allowances to provide support during administration. Often this is a fixed amount, for example, $40,000 in Ohio.

6. Under the Employee Retirement Income Security Act, the surviving spouse is entitled to an annuity following the death of the plan’s participant.

7. The surviving spouse receives Social Security survivor benefits.27

 

Refund Claims

For estate or gift tax returns already filed, same-sex couples should file refund claims or protective refund claims pending a determination regarding the constitutionality of DOMA. They should file a refund claim on Form 843 by the later of three years from the time the tax was filed or two years from the time the tax was paid. In light of the precedent established in Windsor, a current refund claim is appropriate for same-sex couples to claim a marital deduction or to correct a gift tax return. Note that in certain cases in which payment of estate taxes is extended under Internal Revenue Code Sections 6161, 6163 or 6166, an estate will have extended periods for filing a refund within the two years after payment rule. Even if DOMA is found constitutional, state estate tax refund options should be reviewed closely. For example, if a married same-sex couple owns property in New York, but is domiciled in Florida, and one spouse dies, a marital deduction should be available on a New York non-resident estate tax return, irrespective of federal law.

If filing a protective refund claim, same-sex couples should follow these Internal Revenue Service procedures, outlined in Revenue Procedure 2011-48, as guidance when making a claim for estate taxes:

 

1. File the protective claim by the later of three years from the time the return was filed or two years from the time the tax was paid. If no return was filed, file the claim within two years from the time the tax was paid.

2. Write the protective claim with a declaration that it’s being executed under the penalty of perjury, listing the grounds on which the claim for refund is made and the facts sufficient to demonstrate the exact basis of the claim, including:

 

An explanation of why there’s a delay in the payment and satisfaction of the claim.

If other protective claims are being or were filed and the approximate date of each.

If the claim is being contested, then specific information about the contested matter and the potential liability of the estate.

 

3. Submit documentary evidence, such as letters of authority or other similar evidence, to pursue a protective claim. If the person filing the claim submitted the Form 706, then only submit a statement affirming the fiduciary or other person is still acting in a representative capacity.

4. Executors of the estates of decedents dying after Oct. 19, 2009 and before Jan. 1, 2012 should file Form 843.

5. Executors of the estates of decedents dying on or after Jan. 1, 2012 can file a claim on Form 843 or on Schedule PC filed with Form 706.

6. File a separate claim form for each claim or expense for which a deduction is sought. Related and ancillary expenses relating to resolving the claims aren’t considered separate claims and are included in the separate claim from which they arose.

7. If a protective claim is rejected, a corrected claim can be re-filed up to the later of the expiration of the period of limitation or 45 days after the date of notice of the defect. 

8. Contact the IRS if there hasn’t been an acknowledgment of the protective claim filing within 180 days of filing Schedule PC or 60 days of filing a Form 843. If taxpayer contact isn’t made within 30 days of the applicable deadline, then the estate will lose the ability to correct the defective claim if the statute of limitations has expired.

9. Submit notification within a reasonable period. A safe harbor of 90 days will be considered reasonable. If later, submit a reasonable cause explanation.

 

The revenue procedure provides specific information regarding what must be included in the notification and whether to use Supplemental Form 706 or Form 843.28

Whether the Supreme Court in this term will rule on the constitutionality of DOMA and whether the law will be found unconstitutional by next summer remain to be seen. If DOMA is found to be unconstitutional, additional federal legislation could be enacted or same-sex couples could be afforded parity with heterosexual couples for all federal benefits and rights. Resolution among the states, however, will be a lengthy process, and will, as a result, require careful choice as to which states a married same-sex couple chooses to reside or own property. 

 

Endnotes

1. Robert Longley, “Federalism:  National vs. State Government,” http://usgovinfo.about.com/od/rightsandfreedoms/a/federalism.htm.

2. “Status of Same-Sex Relationships Nationwide,” www.lambdalegal.org/publications/nationwide-status-same -sex-relationships.

3. Ibid.

4. Ibid.

5. Lambda Legal “State of Same Sex Marriage,” www.lambdalegal.org (July 15, 2010, modified June 6, 2012). 

6. Ryan Collett, “Maryland and Washington battle referendums against marriage legislation,” 429 magazine, http://dot429.com/articles/2012/09/12/maryland-and washington-battle-referendums-against-gay-marriage-legislation.

7. Mariette Geldenhuys and Robin Abrahamson Masson, Till Death Us Do Part:  Same-Sex Marriage and Estate Planning, at p. 8.

8. “North Carolina Passes Same-Sex Marriage Ban, CNN Projects,” www.cnn.com, May 8, 2012.

9. See supra note 5.

10. Frederick W. Daily, “Recognition of Existing Same-Sex Marriages,” NOLO, www.nolo.com/legal-encyclopedia/recognition-same-sex-gay-marriage-32294.html.

11. Ibid.

12. Baehr v. Lewin, 74 Haw. 530 (Hawaii 1993).

13. See H.R. Rep. No. 104-664, at pp. 2-4 (1996).

14. “U.S. Defense of Marriage Act, September 21, 1996,” Outhistory, http://
outhistory.org/wiki/U.S._Defense_of_Marriage_Act:_September_21,_1996.

15. Ibid.

16. 1 U.S.C. Section 7.

17. Steve Williams, “How Does DOMA Hurt Same-Sex Couples,” (July 21, 2011), www.care2.com/causes/how-does-doma-hurt-same-sex-couples.html.

18. Lisa Leff, “Homeland Security to View Bi-National Same-Sex Couples as Families in Deportation,” Associated Press, Sept. 28, 2012.

19. Attorney General Eric Holder Letter to Congress on Litigation Involving the Defense of Marriage Act (Feb. 23, 2011).

20. See Massachusetts v. U.S. Dep’t of Health and Human Services, et al., 682 F.3d 1
(1st Cir. 2012); Golinski v. Office of Personnel Management,
824 F. Supp.2d 968 (ND Cal. 2012); Pedersen v. Office of Personnel
Management
, 2012 WL 3113883 (D.Conn, July 31, 2012); and Windsor v.
United States
, 833 F. Supp.2d 394 (S.D.N.Y. 2012).

21. 26 U.S.C. Section 2056.

22. Ibid.

23. 26 U.S.C. Section 2523.

24. “Money Education’s Annual Estate Planning Limits,” www.money-education.com.

25. Warren K. Racusin, Michael P. Vito and Shannon Keim, “A Swan Song: Estate Planning in Light of States’ Marriage Equality Laws,” http://bit.ly/SYez0d.

26. Ibid.

27. Jeffrey A. Pennell and Alan Newman, Sum and Substance Quick Review of Wills, Trusts and Estates, Third Edition, at pp. 273-285.

28. See Revenue Procedure 2011-48, at pp. 4-17.