The United States Supreme Court will hear a major case involving complex estate tax issues this session as they review the restrictions under the federal Defense of Marriage Act. The case was brought by a woman who married her longtime partner in Canada and was the sole beneficiary of her estate when she passed away. Despite being legally married, the woman was taxed at the same rate that a child or a friend would have been taxed, rather than benefiting from the marital inheritance tax exemption.
For readers who are unfamiliar with estate taxes and tax planning, the marital exemption allows spouses to pass money or property to the surviving spouse at their death without paying taxes. This policy is in place as one of the many ways that the tax and legal system treats a married couple as a single entity, allowing them to combine assets and liabilities in a way that two people who are not married are unable to.
The estate tax exemption is one of the biggest financial legal benefits to being married in the United States. Under the Defense of Marriage Act, the tax code does not recognize same sex marriages for purposes of this exemption, leaving many couples who are legally married in the state where they live to pay a heavy penalty when one of them passes away.
While the case is primarily known as a gay adjudicating the legality of same sex marriage, the issue at hand is one of estate planning and how tax policies can drastically affect the outcome of one's estate plan. Regardless of the politics of this decision, the ultimate outcome will have a major effect on estate planning and financial decisions for couples in Florida and around the country.
Source: Thomson Reuters, “Analysis: Death, taxes and the Supreme Court's gay marriage case,” Kim Dixon, March 12, 2013.
More information about estate tax and the complex issues that accompany an estate plan can be found on our website.