On June 26, 2015, the U.S. Supreme Court issued a landmark 5-4 decision in Obergefell v. Hodges, holding that every state must license a marriage between two people of the same sex and every state must also recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-state. Justices Kennedy, Kagan, Sotomayor, Ginsburg, and Breyer joined in the opinion, rejecting the ruling of the U.S. Court of Appeals for the Sixth Circuit, and concluded that the exclusion of same sex couples from a right to marry denied them equal protection and due process under the Fourteenth Amendment.
The full impact of this case will be felt at the federal, state, and local levels and will play out over time. Currently, thirteen states deny the rights of same sex couples to marry, but pursuant to Obergefell, all states must now grant these benefits. (The states are: Arkansas, Georgia, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee and Texas.)
The following are some estate planning and tax implications of Obergefell:
- Joint Income Tax Returns: Same sex couples can now file joint income tax returns at both the federal and state levels, regardless of what state they live in. The states must recognize the federal joint return and accept a state joint return, given the Court’s determination that the failure of a state to recognize a valid same sex marriage is unconstitutional. Some married couples may wish to amend any open tax years (generally those filed within the last three years) to file as “married filing jointly” if the amendment will result in a more beneficial outcome.
- A Spouse’s Right to Inherit: In most states, whether a community property state or a separate property state, a spouse has the right to claim an inheritance or receive an intestate share of the estate. Same sex married couples will now have this right to a spousal or elective share.
- Estate Tax Planning: Same sex couples will no longer have to worry about state estate taxes at the death of the first spouse in states that provide for an unlimited estate tax marital deduction, such as Massachusetts. Same sex married couples will be treated the same as heterosexual married couples, facing no limits, annual or lifetime, on gifts or transfers of property to their spouses. Also, they will be able to pass any unused federal estate tax exemption to a surviving spouse under the federal portability rules.
- Gifting: A benefit of marriage is that you can make unlimited gifts to your spouse without worrying about federal or state gift taxes. Now, if a same sex couple buys a home together, for instance, even if they put in different amounts towards the purchase price, they can have joint 50-50 ownership of the house with no gift tax consequences.
- Hospital Visits and Medical Decisions: All same sex married couples will now have the certainty that they will be able to visit their spouse at the hospital, whether they are at home or traveling out-of-state. They will also have the same rights under state laws to make medical, end-of-life, and funeral decisions as are provided to opposite-sex spouses.
- Divorce: Now there will be a fundamental right to a divorce in every state. That will help spouses fighting for support rights such as alimony.
- IRA rollovers: If a spouse inherits an IRA, there is a special spousal rollover provision that lets a surviving spouse take the IRA as the spouse’s own and thereby delay taking distributions until age 70½. This can allow a stretch out of tax deferred payments over the survivor’s lifetime that may postpone the payment of federal and state income taxes.
- Retirement Plans: Same sex married couples will be recognized as spouses for retirement benefit purposes. Now all same sex married couples will have the same survivor benefits rules as opposite-sex couples.
- Spousal Health Insurance Under Group Plans: Obergefell requires employers to treat employees’ same sex and opposite sex spouses equally for purposes of the health insurance benefits extended to spouses. Same sex spouses will now be eligible for healthcare insurance that is provided by their spouses’ employers.
- Social Security: Same sex married couples will be eligible for spouse and survivor benefits.
While Obergefell provides clarity in some areas, it raises questions in others. For instance, state property rights and responsibilities will now be available to same sex married couples. The case’s holding will be applied retroactively, which could reclassify real property thought to be held separately into marital property, including community property and tenancy by the entirety property.