How the Supreme Court DOMA Ruling Affects Estate Taxes (Part 1)

Prior to the U.S. Supreme Court ruling that DOMA is unconstitutional (United States v. Windsor), married gay and lesbian couples could not take advantage of the federal “unlimited marital deduction” available to other married couples (note that this rule is applicable only to U.S. citizens).  Through the unlimited marital deduction, a married person can give an unlimited amount of assets, either by gift during his or her lifetime or by bequest upon death, to his or her spouse without incurring any federal gift or estate taxes.  Therefore, regardless of the value of the estate, a married couple can easily avoid paying any estate taxes upon the first death.

Prior to Windsor, for a married gay or lesbian couple, if the total value of the first spouse’s estate exceeded the applicable exclusion amount (currently $5.25 million), the surviving spouse who inherited the estate would have had to pay estate taxes of up to 40% on all assets over the exclusion amount.  Now, married gay and lesbian couples can also take advantage of the unlimited marital deduction.

Another estate tax advantage now available to gay and lesbian couples is portability, which will be addressed in Part 2.

Of course, federal estate tax planning is only one component of a comprehensive estate plan.  Regardless of whether or not you have a taxable estate, a good estate plan is essential if you wish to make things as easy as possible for your loved ones upon your death or incapacity.