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What DOMA ruling means for a gay couple's finances and how it affects the way estate planning is handled.
THE DOMA RULING ON SAME SEX SPOUSES IN NEW YORK What DOMA Ruling Means for Gay Couple’s Finances and How It Affects the Way Estate Planning Is Handled SAUL KOBRICK NEW YORK ESTATE PLANNING ATTORNEY The DOMA Ruling on Same Sex Spouses in New York www.KobrickLaw.com 1 Justice Kennedy. "Congress has enacted discrete statutes to regulate the meaning of marriage in order to further federal policy, but DOMA with a directive applicable to 1,000 federal statutes and the whole realm of federal regulations has a far greater reach.” And with that, same sex marriages were given the green light. Many of the details in the Supreme Court’s ruling are applicable across the board, regardless of the sex of the two people. In some ways, estate planning attorneys may see this as business as usual, but for others, there are dynamics that will play a role in marriage in New York. The ruling has changed the way estate planning is handled for affluent couples – same sex or otherwise. In one specific area, there exists a crucial tax break that will affect married couples. The marital deduction allows spouses to move as many assets as they wish to each other with no federal estate taxes or gift taxes. Until DOMA, the verbiage in the law defined marriage as a “legal union between one man and woman. A spouse was defined as a person of the opposite sex who is either a husband or wife. That meant same sex couples were paying inheritance taxes above the tax free limits. Those two phrases were also at the heart of the suit that changed everything. In United States v. Windsor, Edith Windsor sought a refund for the more than $360,000 in estate taxes following the death of her partner, Thea Spyer. Windsor and Spyer were married in Canada in 2007. Spire died in 2009 and left her entire estate to Miss Windsor. Section three of DOMA barred Windsor as the executor from claiming the estate tax exemption for surviving spouses. $363,000 was paid in estate tax and the The DOMA Ruling on Same Sex Spouses in New York www.KobrickLaw.com 2 IRS denied Windsor's request for a refund. Windsor believed those two provisions in the definitions of marriage and spouse violated the Equal Protection Clause of the Constitution. Windsor brought a refund suit, contending that DOMA violated the equal protection clause of the Fifth Amendment. Simply put, the clause abbreviated reads, "No person shall be deprived of life, liberty or property without the due process of law.” DOMA though contained two provisions, one that was directly addressed in Windsor and one that was not addressed. Both the New York District Court and the Court of Appeals for the Second Circuit agreed with her assertations and ordered the tax refund be made. That, in essence, changed everything, as mentioned in Justice Kennedy’s remarks. There are many federal benefits for estate planning, including the marital deduction. Surviving spouses of same sex marriages can now take advantage of any unused estate taxes. Currently, that exclusion is $5.25 million. Also, any gift above the annual exclusion will affect the lifetime gift exclusion. If that limit is surpassed, surviving spouses will then be gift taxed up to 40%. The IRS does have regulatory power on some of these issues and it could be that before long, executive orders may be given also. That said, it remains open and will likely have to be hashed out by the court at a later date. In terms of estate planning, the estate executor will be required to transfer the unused benefits to named survivors. From that point forward, those assets can be used in the same traditional ways that married heterosexual couples are accustomed to. The DOMA Ruling on Same Sex Spouses in New York www.KobrickLaw.com 3 There’s also another mandatory caveat: an estate tax return must be filed right after the death of the first spouse. Keep in mind – this is a requirement even if there exists no outstanding taxes due. The window in terms of a timeframe is nine months; however, one extension can be made for no more than six months after the nine months have lapsed. This is absolutely crucial in that if a surviving spouse drops the ball, he or she loses portability rights. In terms of Medicaid, elder lawyers are busy working out the logistics and the impacts for Medicaid planning and even nursing home planning. In traditional marriages, the spouse is required to cover nursing home care as the community spouse. But what happens in same sex marriages where there’s already one spouse in a nursing home? Remember, DOMA had pretty much tied the hands of those in nursing homes in terms of the legal considerations. There are tons of “what ifs” that will have to be worked out – both on the federal and state levels. There are states that have already made a move and say same sex marriages aren’t possible and won’t be honored. That opens up a host of federal tax quagmires. Again, those too will have to be worked out in the coming months. Ultimately, though, the ruling has absolutely cleared the way for possibilities many same sex couples wondered if they’d ever see. Estate Planning for the GLBT Community Will you be shut out when your partner really needs you? Without proper planning, you may be. If a member of the GLBT community fails to properly plan, the result can be devastating to his or her partner and family. Having no estate plan, or relying upon a Will, Joint Tenancy, or Tenancy in Common as an estate plan, is tantamount to giving up control of one's estate and management of one's well-being in times of incapacity. This need for an estate plan is critical in case of an accident or illness that renders the partner incapable of making decisions or managing his or her affairs. Without a proper estate plan, the other partner could be legally precluded from having any role in the decision-making of his or her partner's care, managing his or her affairs, or even having access to the incapacitated partner. Read more… The DOMA Ruling on Same Sex Spouses in New York www.KobrickLaw.com 4 A few other issues that have already been raised include whether an executor can sign for a deceased spouse if their marriage is now recognized. And what about gift splitting? Will one-time recognized marriages now require to go through the process of “recognition” again? Immigration considerations? Are they now citizens because they were married before or do they become citizens if and when they remarry again to one another? Perhaps the best advice for same sex married couples in New York is to contact an estate planning attorney who can ensure all of these delicate intricacies are handled both legally and completely. The possibility of missing something, especially since there’s such a wide learning curve, is certainly a realistic concern. And this is just the tip of the iceberg. Legal help with your financial planning can go a long way towards peace of mind. This is just the beginning of a very high mountain that will be climbed by same sex partners and their attorneys too as they set out to ensure legal compliance in every aspect of their lives. It’s been a long battle for so many, and for those same people, it’s not over yet. No doubt, the word “trailblazer” comes to mind and it all began with Justice Kennedy’s now oft- quoted statement. The DOMA Ruling on Same Sex Spouses in New York www.KobrickLaw.com 5 About the Author Saul Kobrick Estate Planning Attorney Saul Kobrick is an attorney licensed to practice law in the State of New York and the owner and founder of The Law Offices of Saul Kobrick, P.C. Mr. Kobrick is licensed to practice law in all courts of New York State, as well as in the Federal District Courts for the Southern and Eastern Districts of New York. He is a member of the New York State, Nassau, and Westchester County Bar Associations as well as a member of the American Academy Estate Planning Attorneys. Mr. Kobrick is also a member of the National Academy of Elder Law Attorneys. Prior to founding his Garden City Law Firm in 1992, Mr. Kobrick has for many years, practiced law both as a Sole Practitioner, and in partnership in New York City. His work has always included business law, wills, trusts and estate planning. A Suffolk County Branch of the firm was added in January of 1998, and a Westchester County Branch of the firm was added in August of 1999 providing quality Estate Planning and Elder Law services to residents of Nassau, Westchester and Suffolk Counties. The Law Offices of Saul Kobrick, P.C. www.KobrickLaw.com GARDEN CITY HAUPPAUGE HARRISON 1305 Franklin Avenue 235 Brooksite Drive 600 Mamaroneck Avenue Suite 170 Hauppauge, NY 11788 4th Floor Garden City, NY 11530 Phone: (631) 941-3400 Harrison, NY 10528 Phone: 800-295-1917 Fax: (516) 248-7606 Phone: (914) 701-0777 Fax: (516) 248-7606 Fax: (516) 248-7606 The DOMA Ruling on Same Sex Spouses in New York www.KobrickLaw.com 6
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