Estate planning for same-sex partners.

AuthorKaribjanian, George D.
PositionTax Law

In the days of Leave it to Beaver, The Donna Reed Show, and Father Knows Best, the public perception was that all romantic relationships were of the opposite-sex variety. Same-sex attraction and relationships were nonexistent and were considered to be "taboo." Although the last 40 years have brought a great deal of public acceptance of gay and lesbian individuals, it appears to many same-sex couples (1) that the laws adjudicating testamentary dispositions with respect to estate planning were created by individuals living in Beaver Cleaver's Mayfield, Donna Stone's Hilldale, and Jim Anderson's Springfield. As long as a same-sex partner is not deemed a "spouse," same-sex couples do not have access to many of the same estate planning opportunities married opposite-sex couples are given.

The Marriage Quandary

Same-sex couples have the same estate planning and financial needs as opposite-sex couples--the goal of allowing the maximum amount of property to pass to their loved ones with the minimum imposition of transfer taxes and the maximum creditor protection. With same-sex couples, though, the planning difficulties begin with the ability to marry. Federal and state laws both afford certain rights and privileges to couples who are married. For example, a man and woman who can barely stand each other can marry in any state, even if the purpose of the marriage is financial and entertainment gain. Contrast this to the limited matrimonial opportunities available to a same-sex couple engaged in a deep and loving relationship.

As of September 2011, only seven states/districts recognize same-sex marriage: Connecticut, the District of Columbia, Iowa, Massachusetts, New Hampshire, New York, and Vermont. (2) Some states, including California, Oregon, Washington, Nevada, Rhode Island, Maine, Maryland, Illinois, Wisconsin, and New Jersey, have passed legislation acknowledging a "domestic partnership" or a "civil union" that grants same-sex couples some rights, but not the full rights offered to married couples. As of February 2012, Colorado, New Jersey, Washington, and Missouri have pending or passed legislation equating the rights given to same-sex couples in a domestic partnership as those given to married opposite-sex couples (including inheritance and governmental benefits). On the opposite side, West Virginia has a bill on the November 2012 ballot that would restrict marriage to one man and one woman.

The Heart of the Matter-- Defense of Marriage Act

State law is not the only impediment to estate planning for same-sex couples--many federal options were closed in 1996 with the passage of the Defense of Marriage Act (DOMA). Section 3 of DOMA amended Ch. 1 of Title 1 of the U.S. Code by adding new [section] 7, which, when defining "marriage" and "spouse," provides that the word "marriage" means only a legal union between one man and one woman as husband and wife, and the word "spouse" refers only to a person of the opposite-sex who is a husband or a wife.

DOMA has been the subject of many recent judicial and legislative challenges, the most significant of which came in July 2010 when, in Gill v. Office of Personnel Management, 699 F. Supp. 2d 374 (D. Mass. 2010), the federal district court for Massachusetts held DOMA to be unconstitutional. (3) Note, however, that notwithstanding the Gill decision, DOMA remains in effect because the holding of Gill is both limited to its facts and is currently on appeal, and all actions based on the district court decision are stayed pending the appeal.

On November 10, 2011, the Democratic-led Senate Judiciary Committee (SJC) voted to approve [section] 598, titled "The Respect for Marriage Act," which would repeal DOMA. However, because the SJC vote occurred solely on party lines, even if it passes the full Senate, it will presumably fail because it is unlikely to pass the Republican-controlled House of Representatives. (4)

More recently, in February 2012, in Dragovich v. U.S. Dep't of the Treasury (N.D. Cal. 2011), a California federal court refused to dismiss a DOMA challenge. (5) Dragovich involved an action by same-sex domestic partners who were members of the California Public Employees' Retirement System to challenge the constitutionality of [section] 7702B(f), (6) which excludes registered domestic partners as "family members" eligible to enroll in federally qualified, state-maintained, long-term care insurance plans for state employees. The Northern District Court for California held that there was sufficient evidence that [section] 7702B(f) was enacted with pinings of animus against same-sex couples, and, as a result, such allegations were sufficient to state an equal protection claim under the rational basis test.

Pursuant to F.S. [section] 741.212, Florida does not recognize same-sex marriages, even if the marriage is valid in another state. (7) F.S. [section] 741.212(2) has been upheld in both federal court (8) and state court decisions. (9)

The Estate Planning Benefits of Marriage

Being married under federal law has its advantages with respect to taxes and property transfers. Some of the advantages are as follows:

1) Ability to File a Joint Federal Income Tax Return--Regardless of the status of tax law concerning a concept known as the "marriage penalty" (a full explanation of which is beyond the scope of this article), if one spouse earns considerably more income than the other spouse, overall savings can be achieved if the spouses file a joint return.

2) Federal Estate and Gift Tax Marital Deduction--Pursuant to [section][section] 2056 and 2523, property passing (during life or...

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