The spousal exemption to the estate tax is denied to same-sex couples because of the Defense of Marriage Act (DOMA), a law passed by Congress and signed by the president in 1996 that defines marriage as between a man and a woman. Windsor is challenging DOMA in a case the nine-member high court will hear on March 27. At its core, Windsor's fight is with the Internal Revenue Service over how much federal tax she owes on [her same-sex partner’s] estate.
Same-sex marriage has been and, likely, will continue to be a contentious issue in American politics. On March 27, however, the Supreme Court is set to rule in a case that may impact both politics and same-sex estate planning as we know them.
The case going before the Supreme Court is the story of Edith Windsor and Thea Spyer. The subject: the application of the federal estate tax in the context of a “same-sex marriage.” A recent article in Reuters considered the case and its implications. The article titled “Analysis: Death, taxes and Supreme Court's gay marriage case,” notes that the case began when Thea Spyer passed away and left her estate to Edith Windsor, her spouse under Canadian law. However, because the Defense of Marriage Act (DOMA) precludes same-sex marriage, Spyer’s estate was not recognized for purposes of affording the unlimited marital exemption.
This exemption permits a spouse to pass his or her estate to their surviving spouse without federal estate taxation. Because her marital status is not recognized under DOMA, Windsor had to pay the estate tax and her suit is to recover that payment. She is alleging that the basis of the tax, DOMA, is itself unconstitutional.
If the Supreme Court agrees with Windsor, the implications are profound on many levels, to include social and legal. Should DOMA remain the law of the land, then traditional same-sex estate planning will remain unchanged, but no less important.
Reference: Reuters (March 12, 2013) “Analysis: Death, taxes and Supreme Court's gay marriage case”