The Future of DOMA and Same-Sex Estate Planning


In June, we brought you Windsor – the New York District Court case holding that part of the Defense of Marriage Act (“DOMA”) is unconstitutional and finding that a same-sex couple was entitled to the federal marital deduction.  Windsor is one of five federal cases from 2012 which ruled against DOMA, either directly or indirectly, and many believe that it is only a matter of time before the Supreme Court rules, finally, on the law’s constitutionality.  On Monday, plaintiff, Edith Windsor, opened one such window of opportunity when she filed a Petition for Writ of Certiorari Before Judgment in the Supreme Court.

The Supreme Court’s decision to grant cert is wholly discretionary; therefore, there is no telling whether Ms. Windsor’s case will be heard.  In the meantime, the question is: what should same-sex couples do about their estate taxes?  In the absence of binding, local federal case law to the contrary, federal estate tax benefits for married couples still only apply to heterosexual partnerships, even in states that recognize same-sex marriage.  This holds true in Maryland and in D.C.  Therefore, as groundbreaking as decisions like Windsor may be, local same-sex couples must still file separate Federal income tax returns, and they are not entitled to exemptions from Federal estate or gift taxes for transfers made between them.

While we wait for the Supreme Court, however, there is a strategy that may be wise for same-sex couples and widowed spouses to consider, depending on their circumstances:  the protective claim for refund.   A protective claim for refund may be filed after you have paid a tax, and in the situation where your right to a refund is based on some contingency, like a pending court case.  The IRS will not decide whether you are entitled to the refund until the contingency resolves, but filing the claim ensures that the statute of limitations will not run out on your request.  This is important because the statute of limitations for filing a refund claim is relatively short; generally, it is either three years from the time the return was filed, or two years from the time the tax was paid, whichever is later.  See 26 USC § 6511(a).  A protective claim should be filed within the same period, and, once it is, you need not fear that a drawn out contingency will cut off your ability to have money returned to you.

Nevertheless, the question remains:  If DOMA is declared unconstitutional, what will happen to those individuals who paid unnecessary tax, but whose time period for filing a refund claim expired?   Unfortunately, we do not know the answer, because the Supreme Court never seems to have ruled on the issue in the context of Federal taxes.  There are arguments to be made in favor of refunding the money, including under the Due Process Clause of the Fifth Amendment, and the issue will likely arise, and thus provide us with an answer, if DOMA is declared unconstitutional.

Because of the current, differential tax treatment and because of other unique issues, estate planning is especially crucial for same-sex couples.  Call us at (301) 468-3220 today, or email us at liz@www.altmanassociates.net to ensure that you and your loved ones are protected.

–  Gary Altman, Esq. and Coryn Rosenstock

RELATED BLOG POSTS:

New York District Court Says Same-Sex Spouses Can Use Federal Marital Deduction
A Victory for Same-Sex Couples?

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