This morning, the Supreme Court announced its decisions in two prominent cases dealing with same-sex marriage: United States v. Windsor, Executor of the Estate of Spyer, et al., 570 U.S. ___ (2013), and Hollingsworth et al. v. Perry et al., 570 U.S. __ (2013).  The Court ruled in favor of marriage equality in both instances.  In Windsor, a 5-4 decision[1] written by Justice Anthony Kennedy, the Court held that §3 of the Defense of Marriage Act (DOMA), defining marriage as between a woman and a man, is unconstitutional and violates principles of equal protection incorporated into the Fifth Amendment.  In Hollingsworth, a 5-4 decision[2] written by Chief Justice John Roberts, the Court held that the proponents of Proposition 8 (the California proposition limiting marriage in California to opposite sex couples) did not have standing to appeal the case to the Court, which prevented the Court from deciding the merits of the case. Accordingly, the Ninth Circuit Court of Appeals ruling on February 12, 2012 in this matter holding that Proposition 8 is unconstitutional is reinstated. The result is that same-sex marriage is once again permitted in California. Both cases will have a profound impact on same-sex couples throughout the country by giving them the same legal rights as their opposite sex couple counterparts.

MARRIAGE EQUALITY

In Windsor, the Court reviewed the case of Edith Windsor and Thea Spyer.  Edith and Thea, residents of New York, were married in Ontario, Canada in 2007.  New York law recognized the marriage between Edith and Thea as a valid marriage.  Thea died in 2009 leaving all of her assets to Edith.  Generally, when one spouse dies and leaves all of his or her assets to the other spouse, there will be no estate tax because of the unlimited marital deduction (which is an exemption from estate tax for assets passing to a surviving spouse).  Edith, however, paid $363,053 in estate tax for the assets she received from her spouse.  She then applied to the IRS for a refund of the estate tax paid asserting that she was entitled to the marital deduction and did not owe any estate tax for the assets she received from Thea.  The IRS, citing DOMA, refused to give Edith a refund.  Edith then filed the court case that was ultimately decided by the U.S. Supreme Court this morning.

Based on the Court’s ruling, Edith is entitled to a marital deduction from estate tax for the assets she received from Thea and she will receive a tax refund.  Furthermore, same-sex married couples who reside in states that recognize their marriages will now be entitled to all the federal benefits afforded opposite sex married couples.  Those benefits include:

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.

STATES HAVE SOLE AUTHORITY TO DEFINE AND REGULATE MARRIAGE

The Court was clear in its decision that States have the sole authority to define and regulate marriage.  If Edith and Thea had lived in Alabama instead of New York, their state of residence would not have recognized their marriage as valid and Edith would not have been entitled to a marital deduction for the assets she received from Thea upon her death.  Currently, 13 states (Washington, California, Minnesota (effective August 1, 2013), Iowa, Maryland, Delaware (effective July 1, 2013), Connecticut, Rhode Island (effective August 1, 2013), Massachusetts, New York, Virginia, New Hampshire and Maine) and the District of Columbia have laws permitting same-sex marriage.  The decision in Windsor does not require the states that do not permit same-sex marriage to now adopt laws allowing it.

Justice Scalia points out in his dissent in Windsor that this ruling raises a whole host of new issues to be faced by same sex couples married couples.  For example, if a same-sex couple is married in one state that permits same-sex marriage and then moves to another state that does not recognize the marriage (as permitted by § 2 of DOMA), what rights do the same-sex married couple have in the new state?  Can they still file a joint income tax return? Can they still qualify for spousal health benefits?  Can they still qualify for spousal Social Security benefits?  These issues will certainly be encountered and addressed by the legal system in the future.

UPDATE

On Friday, June 28, 2013, the Ninth Circuit Court of Appeals lifted the stay on its February 2012 decision ruling Proposition 8 unconstitutional thereby allowing marriage licenses to be issued to same-sex couples in California.  The proponents of Proposition 8 made an emergency appeal to Supreme Court Justice Anthony Kennedy on Saturday, June 29, 2013 in an attempt to obtain a ruling that the action of the Ninth Circuit Court of Appeals lifting the stay was premature.  They asserted that the Appellate Court had to wait another three weeks before the stay could be lifted, which is the remaining time that they have to apply for a rehearing on the case to the Supreme Court.  The appeal, however, was summarily rejected by Justice Kennedy with no explanation on Sunday, June 30, 2013.  On a related note, the two couples who sued to overturn Proposition 8 in Hollingsworth were both married on the day the stay was lifted.

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