Same Sex Couples Estate Planning

The last few years have brought several favorable developments for same sex couples in the tax and estate planning arenas. The Supreme Court ruled in the Windsor case a couple of years ago that same sex couples were entitled to the same federal estate tax benefits that a traditional married couple enjoys. In Windsor, the surviving spouse and executor of a same sex union sued the IRS for recovery of taxes paid that would not have been by a traditional married couple by way of the marital deduction.

The surviving spouse claimed that the Defense of Marriage Act (DOMA) that outlaws same sex unions and therefore lead to the denial of the estate tax marital deduction was unconstitutional. While the Supreme Court did not rule specifically on the direct issue, it did rule in a split (5-4) decision that when individual states recognize same sex marriages, the federal government cannot deny benefits to surviving spouses, including legal and tax benefits. That decision led to the surviving spouse in the Windsor union receiving the same federal tax benefits that a traditional married spouse would have received and, therefore, the estate tax paid was refunded.

The Justice Department decided not to contest the constitutionality of the Supreme Court’s decision. Shortly thereafter the IRS issued a Revenue Ruling (2013-17) that responded to the Supreme Court’s opinion in Windsor, ruling that same-sex couples who are legally married in states or foreign countries that recognize the validity of their marriages will be treated as married for all federal tax purposes, even if they live in a state or other jurisdiction that does not recognize same-sex marriages. Specifically the IRS raised and answered the following three questions:

  1. Do “spouse,” “husband and wife,” “husband,” and “wife,” include lawfully married persons of the same sex? Here the IRS answered “Yes.”
  1. Is this true if the jurisdiction in which the couple is currently domiciled, unlike the jurisdiction in which the marriage was established, does not recognize same sex marriages? Again, the IRS answered the question as “Yes” – in other words – if a same sex couple were legally married in Massachusetts that does recognize same sex marriages, but subsequently moves to Florida that does not, the couple will still receive the benefits of being considered married for federal legal and tax purposes.
  1. Is this true of registered domestic partnerships, civil unions, and similarly recognized formal relationships? Here the IRS answered the question “No.” The same sex couple must be legally married in a state or country that recognizes same sex marriages in order to be considered married.

When the revenue ruling was released, Secretary of the Treasury Jacob Lew said: “Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve. This ruling also assures legally married same sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

These pronouncements and rulings provide many federal income and estate tax benefits for same sex married couples. As mentioned in the Windsor case, the estate tax marital deduction is available to same sex couples, as is portability of unused spouse estate exemption, the filing of joint income tax returns, tax free gift transfers between spouses, gift splitting so that the spouses can double the amount of tax-free gifts to other loved ones and a variety of other benefits.

There are also downsides for same-sex married couples under the tax laws. The “marriage penalty” that serves to tax two-income earning married couples at a higher rate than if they were both single now applies to same-sex married couples. The maximum mortgage interest deduction is limited to $1.1 million of debt among a married couple as opposed to $2.2 million to a non-married couple.

Participants in certain employee benefit plans subject to the ERISA laws will be required to obtain the spouse’s written consent before designating anyone other than the spouse (such as a trust) as beneficiary of certain benefit plans. Losses are generally not allowed for transfers between spouses as well.

Same-sex spouses who entered into prenuptial or postnuptial marital agreements have often addressed how the fact that they did not qualify for various income tax benefits and other benefits affects their property rights vis-à-vis each other. Those agreements should now be reviewed, and future marital property agreements should be structured in light of these new laws.

There’s definitely a lot to consider. Those who are in same sex marriages should take the time to review their planning to make sure that it is up to date with all of these changes.


The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Who Qualifies as Your Personal Representative?

“James,” a widower, sat in my office as we prepared his will together. “My sons don’t have the time or expertise to serve as my executor, so I’d like to name my friend, Oliver, in that role.”

“So Oliver isn’t related to you?” I asked.

“No,” James replied.

“Where does Oliver live?” I asked.

“In Atlanta.” James said.

“Unfortunately he won’t qualify to serve under Florida law,” I advised. You can name a friend, but they must be residents of Florida at the time of your death in order to qualify as your personal representative, which is what we call an executor here.”

“What about my nephew Hector?” James asked. “Does he have to be a resident of Florida to qualify?”

“No,” I answered. “A nephew will qualify no matter where he lives.”

“Even if he lives in Costa Rica?”

“Yes, even if he lives in Costa Rica,” I laughed. “Is that where Hector lives?”

“He enjoys it there, and he got in some trouble here so that’s why he moved there.” James added.

“What kind of trouble?” I asked.

“It’s kind of a long story, and he’s a good kid, but he has a record now.”

“If he’s a convicted felon he won’t qualify as your personal representative,” I said.

“This is getting harder than I thought,” James said, rubbing his chin.

Florida law is fairly open with who can serve as the personal representative of your probate estate under your will. Any Florida resident will qualify, no matter the relationship to you. Certain relatives will always qualify so long as they haven’t been convicted of a felony or are mentally or physically unable to perform the duties.

Those relatives include any child or legally adopted child, someone related by lineal consanguinity to you, a spouse, or a brother, sister, uncle, aunt, nephew or niece, or anyone related by lineal consanguinity to any such person. Moreover, a spouse of a person who would otherwise qualify may also serve as a personal representative. Consanguinity means “blood relation” and is defined as the quality of being descended from the same ancestor as another person.

So under Florida law your nephew’s spouse who lives in Singapore will qualify as your personal representative but your best friend from Ohio will not.

A personal representative has broad powers relating to the assets of the estate. They can sell homes, liquidate investments, and change the bank and investment accounts into their name as the personal representative of the estate during the course of the administration. This makes it easy to abscond with the assets, leaving the decedent’s creditors, beneficiaries and taxing authorities holding the proverbial empty bag.

So the theory behind Florida law is that a Florida resident would be subject to the jurisdiction of the Florida courts, and if they were to commit any fraud they would have to answer to the court. As far as relatives, I suppose the theory is that a decedent has a right to name a family member (who is related either by blood or marriage) to serve in this important role.

Most wills indicate that the “personal representative shall serve without bond.” Probate courts, however, are free to impose a bond on personal representatives, and frequently do. The size of the bond is usually relative to the size of the estate under administration. A $200,000 bond may cost the estate $300 or so annually, but this bond protects the creditors and beneficiaries from a dishonest personal representative.

When you move from another state to Florida, this is another reason to update your legal documents. The parties you may have named in your former home state may not qualify to serve here.

 The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.