Estate Planning Isn’t Just For The Elderly

Happy, smiling couple in their sixties.

The Repeal of DOMA Makes Estate and Long Term Care Planning Critical for Same Sex Married Couples

By: Anthony J. Enea, Esq.

In United States v. Windsor, 570 U.S. ____ (2013)(Docket No. 12-307), the United States Supreme Court held that the provisions of the Defense of Marriage Act (DOMA) which defined marriage as a union between one man and one [email protected] was unconstitutional. While this decision has led to numerous federal benefits being extended to same sex couples that they were previously denied, such as federal health care benefits, federal income tax filings, federal pensions and retirement accounts, for purpose of this article I will focus solely on the estate tax changes effecting legally married same sex couples resulting from DOMA repeal.

Perhaps the most important impact of the repeal of DOMA from a federal estate tax perspective is that legally married same sex couples are now able to avail themselves of the benefits of the federal unlimited marital deduction. Simply stated, the marital deduction allows married couples to gift during lifetime and to leave to each other upon death an unlimited amount of assets free of any federal estate and gift taxes. Prior to the repeal of DOMA same sex married couples were not able to avail themselves of this benefit which depending on the size of the estate of the first to die could result in federal estate taxes. Legally married same sex couples can now engage in estate planning where they can utilize their applicable federal estate and gift tax exclusion amount ($5,340,000 for 2014) by allowing it to remain in trust for their spouse upon their death with the balance passing free of any federal estate taxes to their spouse as a result of the marital deduction. The legally married same sex couple can now utilize a credit shelter [email protected] and a disclaimer [email protected] planning which they were previously denied from doing which often resulted in federal estate taxes upon the death of the second to die.

As a result of the repeal of DOMA if the estate of a legally married same sex couple has paid federal estate taxes on assets inherited by his or her spouse, an amended estate tax return may be filed within the applicable period of limitations to allow the estate to claim a refund. Additionally, inter spousal gifts made by the legally married same sex couple are no longer subject to gift taxes, and the couple may file an amended gift tax return within the applicable period of limitations and retroactively claim the unlimited marital deduction.

As a result of DOMA repeal, a same sex married couple can now also take advantage of the portability [email protected] for the unused applicable estate tax credit ($5.34 million for 2014) of the first spouse to die. This is of significant value if the first spouse to die failed to effectuate any tax estate tax planning and left his or her entire estate outright (free of any trust) to his or her spouse or if he or she held assets jointly with his or her spouse. To take advantage of this election, the executor of the estate of the deceased spouse must file an estate tax return for the decedent and elect to transfer the unused applicable credit of the deceased spouse to the surviving spouse who can utilize the decedent’s unused credit to make inter vivos gifts during his or her lifetime or to pass assets upon his or her demise. Irrespective of whether there is an estate tax due in order to take advantage of the portability [email protected] an estate tax return must be filed. The return is due within nine (9) months from date of death, however, a six month extension can be obtained. If the return is not filed and the election is not timely made, the surviving spouse could lose the right to portability. Electing portability will give the surviving spouse the full benefit of the decedent’s unused applicable exclusion even though the decedent did no estate planning.

Some additional estate and gift tax benefits resulting from the repeal of DOMA are:

(a) A legally married same sex couple can now engage in a gift [email protected] They can combine their annual gift tax exclusion of $14,000 per person per year to give $28,000 per person per year without utilizing any of their lifetime applicable exclusion;

(b) A legally married same sex couple can also name each other as the beneficiary of life insurance policies knowing that said death benefits will be free of federal estate taxes because they can avail themselves of the unlimited marital deductions.

Thus, as a result of DOMA repeal legally married same sex couples can utilize all of the estate tax planning tools they previously could not to take full advantage of both the unlimited marital deduction and the applicable exclusion amount. With proper planning a married same sex couple can exclude $10.68 million dollars from federal estate taxes. This will also allow the same sex couple to engage in Medicaid and long term care planning without worrying about potential gift and estate tax consequences.

The New York estate tax credit is presently $1,000,000 per person and New York does not have a gift tax. The fact that New Yorkers estate tax credit amount is decoupled from the federal estate tax credit has in recent years created the necessity that estate tax planning be done for relatively modest sized estates to avoid incurring a New York estate tax. This planning will also need to be implemented by legally married same sex couples in New York as long as the credit remains at $1 million per person. It should be noted that Governor Cuomo proposed budget which was just released proposes a significant increase of the New York estate tax credit to five million ($5,000,000) dollars per person.

Anthony J. Enea, Esq. is the managing member of the firm of Enea, Scanlan & Sirignano, LLP of White Plains, New York.

His office is centrally located in White Plains and he has a home office in Somers, New York.

Mr. Enea is the Immediate Past Chair of the Elder Law Section of the New York State Bar Association.

Mr. Enea is a Past President and a Founding Member of the New York Chapter of the National Academy of Elder Law Attorneys (NAELA). He is also a member of the Council of Advanced Practitioners of NAELA.

Mr. Enea is a Past President of the Westchester County Bar Association.

Mr. Enea is the President of the Westchester County Bar Foundation.

Mr. Enea is the Vice President of the Columbian Lawyers Association of Westchester County.

Mr. Enea focuses his practice on Elder Law, Wealth Preservation, Guardianships, Medicaid Planning and Applications, Wills Trusts and Estates.

Enea, Scanlan & Sirignano, LLP