07 May 2012

Estate planning for same sex couples in California is challenging given the ever changing state law on what is considered a legal marriage in California and also due to the federal Defense of Marriage Act that does not recognize same sex marriage for federal law purposes. Proper estate planning for same sex couples who are not married and who are not registered domestic partners is necessary in order insure that certain rights of the couple are recognized under state law (e.g., right to inherit from a same sex partner, right to make medical decisions on behalf of a same sex partner, etc.) that are not automatically afforded to them under state law. In addition, creative tax planning techniques need to be employed for same sex couples who are not recognized as married under federal law and who are not entitled to the unlimited marital deductions for transfers of assets between spouses. However, until federal law recognizes same sex marriage as a legally valid marriage, same sex married couples will never be able to attain the benefits that their opposite sex married couple counterparts legally enjoy.

Summary of California Law On Same Sex Marriage. On June 16, 2008, a ruling by the California Supreme Court, In re Marriage Cases (2008) 43 Cal.4th 757, took effect and deemed a California statute defining marriage as a civil contract between a woman and man unconstitutional as it deprived same sex couples of their constitutional right to marry. During the limited period from June 16, 2008 through November 8, 2008, California legally recognized same sex marriages as valid marriages for state law purposes. However, on November 8, 2008, a voter supported ballot initiative and constitutional amendment known as Proposition 8 was passed. The newly approved constitutional amendment provided that only a marriage between a woman and a man is a valid marriage in California.

Following the passage of Proposition 8, two same sex couples who applied for and were denied marriage licenses sued the State of California in a California federal district court in the matter Perry v. Schwarzenegger (now known as Perry v. Brown) asserting that Proposition 8 violated their rights under the U.S. Constitution. On August 4, 2010, the district court held that the ban on same sex marriage was unconstitutional. The district court’s ruling was affirmed on appeal on February 12, 2012, by the Ninth Circuit Court of Appeals. This decision has been stayed pending further appeals. This means that until there is a resolution of this court matter, the ban on same sex marriage in California continues.

Under current California law, the State of California recognizes:

1.         Same sex marriages that occurred in California during the time period that California recognized same sex marriages as legally valid;

2.         Same sex marriages that took place outside of California before Proposition 8 was approved (and includes the time period before same sex marriages were allowed in California); and

3.         Registered domestic partners who are given the same rights under California law as same sex married couples, but they are not permitted to refer to themselves as “married” under the law.

Defense of Marriage Act.  The Defense of Marriage Act (DOMA) is a federal law defining marriage as the legal union between one man and one woman.  DOMA was signed into law by President Bill Clinton on September 21, 1996. DOMA further provides that no state is obligated to recognize a same sex marriage that is considered a valid marriage in another state. In February 2011, the Department of Justice, under the Obama administration, issued a memo stating that it would no longer defend DOMA in litigation against legally married same sex couples.

Federal Law Benefits That Are Not Extended To Same Sex Married Couples.  Opposite sex married couples receive numerous benefits under federal law that are not extended to same sex married couples. Some of those benefits are:

1.         Unlimited marital deduction for transfers of assets between spouses during lifetime and at death.

2.         Social security benefits.

3.         Right to be treated as a spouse for purposes of making a “rollover election” with respect to a deceased spouse’s 401(k) plan or IRA.

4.         Right not to recognize gain or loss on transfers made to an ex-spouse incident to divorce.

5.         Right of an ex-spouse who pays alimony or separate maintenance to his or her ex-spouse to deduct those payment for federal income tax purposes.

6.         Right to file joint federal income tax returns.

7.         Right to exclude the value of employer-provided health insurance coverage to a spouse from federal income taxes.

Solution. California law is in a state of flux regarding same sex marriage. However, same sex couples in California can obtain the same state law benefits as a same sex married couple by registering with the State of California as domestic partners. Under federal law, opposite sex married couples receive significant tax and retirement benefits that are not extended to same sex married couples. But, with proper estate and tax planning, accommodations can be made to lessen the tax impact of transfers of assets between same sex partners and to substitute government provided retirement and death benefits through the use of insurance.

If you would like to discuss this or other trusts and estates issues, please contact the attorneys at Drucker Law Offices, 468 North Camden Drive, 2nd Floor, Beverly Hills, CA 90210, 310.285.5375 Tel, 310.444.9754 Fax, www.druckerlaw.com

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