U. S. Supreme Court Rules DOMA Unconstitutional: Estate Planning for LGBT Couples Just Got Easier – and More Complicated
On June 26, 2013, the Supreme Court ruled in U. S. v. Windsor (“Windsor”) that Section 3 of the federal Defense of Marriage Act (“DOMA”) is unconstitutional as a deprivation of the equal protection of persons that is guaranteed by the Fifth Amendment of the Constitution. DOMA is the federal law which defines marriage as only between a man and a woman. Section 3 disallowed federal recognition of a same-sex marriage which is valid under a state law. DOMA was enacted by large majorities in both houses of Congress and signed into law by President Clinton in 1996. It is directly applicable to over 1,000 federal statutes and regulations.
Under the Constitution, each state retains the right to define marriage for its own citizens. Currently, there are thirteen states that permit and recognize marriage between same-sex spouses: California (but, see the caveats below), Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington. The District of Columbia also permits and recognizes same-sex marriage. New Mexico’s position on same-sex marriage remains unclear as it has no law recognizing or prohibiting the recognition of same-sex marriages. The rest of the states prohibit same-sex marriage, either by state statute or in their state constitution.
It appears that same-sex marriage is allowed again in California. On June 26, the Supreme Court dismissed Hollingsworth v. Perry (“Perry”), holding that the plaintiffs lacked standing to represent the state of California both before the Supreme Court and the Ninth Circuit Court of Appeals. As such, the holding of the U.S. District Court (for the Northern District of California) that Proposition 8 was unconstitutional, stands. The District Court had enjoined the officers of California from carrying out Proposition 8. The Ninth Circuit, which had issued a stay of the District Court’s injunction, pending the outcome of the appeal, dissolved the stay on June 28. That same day, California Governor Jerry Brown and Attorney General Kamala Harris ordered the county clerks of all counties in California to start issuing marriage licenses to same-sex couples. Various groups opposing same-sex marriage contend that Brown and Harris may have over-stepped their authority. They contend that the District Court’s ruling is only binding on the counties or individuals involved in Perry and that Proposition 8 is still valid outside of the fifteen counties which comprise the Northern District of California, which issued the ruling. Same-sex marriage supporters counter that the injunction applied to the officers of the state and their carrying out Proposition 8 anywhere. They also point to statutes requiring uniform application of laws across the state. On June 30, U.S. Supreme Court Justice Anthony Kennedy rejected objections to the Ninth Circuit’s lifting of the stay. While there remains some uncertainty, as of July 1, same-sex marriages resumed in every county in California.
In Windsor, the U.S. Supreme Court held that Section 3 of DOMA is directed at a class of persons that the laws of these twelve (or thirteen) states and the District of Columbia are seeking to protect and, as such, it is a deprivation of an essential part of the liberty protected by the Fifth Amendment. DOMA deprives some couples married under the laws of these states of their rights and responsibilities, but not others. It creates two different marriage regimes in the same state that is based on whether the couple is of the same sex or opposite sexes. The court’s ruling invalidates Section 3 of DOMA.
The effect of this ruling is to assure that all married couples in a state, whether straight or gay, are to be treated the same under federal law. If the same-sex couple is legally married and resides in a state that recognizes their marriage, then the couple will be treated as married for all federal purposes. If the couple resides in a state that does not recognize same-sex marriage, then the couple may be considered “legal strangers” under federal as well as state law.
This dichotomy could bring about unintended consequences. What if a same-sex couple resides in Massachusetts and is legally married under Massachusetts law and, because one of them is transferred by his or her employer, they both relocate to Texas (which does not recognize same-sex marriage). In that case, because the couple would not be considered to be married under Texas law, the federal government also would not recognize their marriage (for most purposes).
What about an even more bizarre circumstance. Consider a same-sex couple legally married in Vermont. For business purposes, one of them relocates to Maine. The State of Maine recognizes same-sex marriages, including those performed in Vermont and other states in which they are valid. So, as far as Maine is concerned, the couple is legally married. The other of them resides in Virginia, which does not recognize same-sex marriage. Would the couple’s marriage be recognized for purposes of federal income taxes, estate taxes, social security, Medicare, and other federal benefits available to a spouse? Windsor does not provide a clear answer in this situation.
Some have even suggested that the Supreme Court ruling in Windsor might create an estate planning opportunity for unmarried family members in some states. States typically have laws prohibiting marriage between close family members. However, some states have laws that prohibit those family members using gender-based terms like “brother,” “sister,” “aunt,” “uncle,” etc. In other words, in some states, the statutes do not anticipate that the related parties could be of the same gender. If one close family member could legally marry another one, they could potentially save substantial state, and perhaps even federal, estate taxes.
While many in the LGBT community and across the nation are rightfully celebrating the Supreme Court’s rulings in Windsor and Perry, the state of same-sex marriage in the United States is far from settled at this time. At least thirty-six states still prohibit and refuse to recognize same-sex marriage. Same-sex marriage is only valid in states with 30% of the country’s population.
For this reason, it continues to be vitally important that LGBT couples have a comprehensive estate plan in place. Depending on their state of residence, the plan for a married couple should include either a joint revocable trust or two separate trusts to direct where assets are to be distributed after the death of each of them, potentially afford asset protection to the survivor or the remainder beneficiaries, avoid probate, and potentially reduce state and/or federal estate taxes. A plan for unmarried LGBT couples would include two separate trusts. A plan for a couple, whether or not married, also would include durable powers of attorney for property which will allow each of them and other designated agents to manage the finances of the couple in the event of the incapacity of one or both of them. Finally, an advance health directive, health care power of attorney, or health care proxy (the name of this document varies from state to state) gives the other party or other designated persons the power to make health care decisions in the event that one of the couple is not able to express his or her wishes.
Our law firm provides advice to LGBT couples on their estate planning alternatives, including whether marriage may be a viable planning alternative. Our firm provides comprehensive estate plans to LGBT couples who are married, who have entered into a civil union or domestic partnership, or who remain unmarried. We also offer trust administration and probate services at the death of one of an LGBT couple. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up to date with information regarding recent legal developments, such as the two Supreme Court cases discussed in this alert. You can get more information about a complimentary review of your clients’ existing estate plans and our planning and administration services by calling __________________________ at (____) ________________, or by visiting our website at www.