The DOMA Ruling and Estate Planning


As an estate planning attorney, my job is to ensure that my client’s estate planning documents reflect their wishes, preserve as much wealth as possible and remain in accordance with the law.  Creating that delicate balance for same-sex couples has always required more complicated decisions and strategies, including whether or not to be legally married in the first place. The overturning of DOMA now allows us to utilize the same, more mainstream estate planning toolkit that we’ve been using for heterosexual married couples.

The Financial Impact

While this is obviously a very big civil rights victory for same-sex couples, this is a financial victory for them as well.  Under the new ruling, married same-sex couples will now be privy to the same Federal tax advantages as married hetero couples.  They will be required to file their individual income taxes as married or married filing separately.  If one of the spouses dies, then the surviving spouse is able to avoid or defer all Federal estate taxes, due to the marital deduction against estate taxes.  Similarly, married same-sex couples will now have equal rights to Social Security and Medicaid spousal benefits.  The exact financial impact for each person or couple is difficult to gage.  It will depend on their income, their benefits and the value of their assets.  In any event, it could be a significant savings for most couples.   (Word of caution, however, for some couples, it could actually cost them more in either income taxes or being responsible for their spouse’s nursing home costs, for example.) 

The Challenges Ahead

The biggest challenge facing same-sex couples is one that really applies to everyone:  Laws will continue to change.  What is law today could be gone tomorrow, therefore it’s important to never become complacent with your financial and estate planning.

Another great challenge is accounting for variances in Federal and State laws.  While the DOMA decision could very well pave the way for legalizing same-sex marriage in the 37 states that do not currently allow it, the reality is that we aren’t there yet.  Even with the over-turning of DOMA, same-sex couples seeking to be married will need to do so in a State that authorizes same-sex marriages.  Taking it one step further, they will need to consider living and buying property in in states that that recognize same-sex marriages.  For example, in Virginia, where same-sex marriages are not legal, unless Virginia’s statute on DOMA is overturned, even a same-sex couple married in nearby Maryland (or another state where it is authorized) would not be recognized by Virginia law.  This could have a very dangerous financial impact.

The Bottom Line

The bottom line is that, without advanced planning, all people are at risk of losing access to benefits they’d otherwise have, paying more taxes than they otherwise would and/or having their assets distributed according to Federal and State law, perhaps in ways they did not intend, upon their death.

In light of the DOMA decision, it is now critically important that same-sex couples take action to create or update estate planning documents.  This includes a Will, Power of Attorney, medical documents and Trusts.

We will probably advise all same-sex married couples to calculate their income taxes for the past few years as married to determine if it makes sense to file an amended income tax return.  Moreover, in the event that someone’s spouse had died, and the surviving spouse paid estate taxes, either to the Federal government or to a state, like Maryland, it would make sense to file for a refund at this time.

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