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.

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Craig R. Hersch

  • Senior Partner,
    • Sheppard Law Firm
  • Florida Bar Board Certified Estate Planning Attorney / CPA
  • Editorial Advisory Board Member,
    • Trusts & Estates Magazine
  • Founder & Board Member,
    • State Chartered Trust Company