SAME-SEX MARRIAGE: ESTATE PLANNING AFTER WINDSOR
Feb. 25, 2014
The WINDSOR decision, striking down section 3 of the Defense of Marriage Act (DOMA) as an unconstitutional violation of the Fifth Amendment, had a significant impact on estate planning for same sex couples. The decision results in Estate planning changes in the following areas:
The most significant change results from the qualification of same-sex spouses for the marital deduction underIRC section 2056. This opens a number of options for deferring taxable events to the death of surviving spouse.
Transfers Between Spouses:
Same-sex spouses may now decide to treat transfers between themselves as gifts or sales. Sales between same-sex spouses will not recognize gains and losses. Same-sex spouses can utilize different treatment of adjustment to tax basis in structuring the optimal plan.
A surviving same-sex spouse may now use the deceased spouseвЂ™s unused estate tax exclusion under IRC section 2010(c )(4).
Generation-Skipping Transfer Tax: Same-sex spouses with a large age disparity may have developed plans utilizing their GST exemption for transfers between themselves. This exclusion amount will now be available for other planning purposes.
Community Property Assets:
Same-sex spouses will receive the benefit of the step-up in basis for income/capital gains tax under IRC 1014(b)(6).
Joint Tenancy Property:
Same-sex spouses will have a 50% interest in any property held in joint tenancy under IRC 2040(b).
Grantor Trust Rules:
Opportunities to shift tax responsibilities may be available to same-sex spouses by designing "intentionally defective" grantor trusts.
Same-sex spouses will now have the flexibility to disclaim certain interests in property, while retaining other interests in that same property.
IRA Beneficiary Designations:
The surviving same-sex spouse will now have the benefit of the unlimited spousal deduction for the IRAs. The surviving spouse will be free to designate where the IRA will go, including the ability to roll the IRA into their existing IRAs. Additionally the same-sex spouses will now have more flexibility in planning for required IRA withdrawals by using appropriate beneficiary designations.
For Same-Sex Marriage; the most important message to take away is that if you are a same-sex couple that designed an estate plan prior to WINDSOR, It would be highly advisable to have that plan reviewed in order to see if these changes provide new opportunities that would benefit you. Please give us a call or fill out our contact form and one of our Attorneys would be glad to assist you.