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A Better Partnership

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Oct 2013
21
October 21, 2013

Effect Of DOMA On Michigan-Domiciled Same-Sex Couples


In June of this year, the U.S. Supreme Court ruled that the definition of marriage as between a man and a woman under the Defense of Marriage Act (DOMA) was unconstitutional.  The ruling means that married couples of the same sex will now be treated the same as all married couples for federal tax purposes.

Unfortunately, the Court’s decision left a number of unanswered questions.  For example, it was unclear how the ruling would apply to the numerous agency regulations and programs involving the rights of a same-sex spouse.  It was also unclear whether the marital status of a same-sex couple would be determined by the law of the state of their marriage or their state of residency.

After the Court’s ruling, the IRS answered some of these questions.  For federal tax purposes, a same-sex marriage will be recognized and treated as an opposite-sex marriage, regardless of whether or not the couple’s state of residence recognizes the marriage.  This “gender-neutral” definition of a legal marriage does not apply to domestic partnerships, civil unions or other similar relationships that may be recognized as a marriage under state law.

The IRS also clarified a number of other issues, including:

Gift and Estate Tax

For federal gift and estate tax purposes, legally married same-sex couples can now take advantage of:

  • The unlimited marital deduction that allows assets to pass to a surviving spouse, free of federal estate tax
  • The portability election that allows the estate of the first deceased spouse to transfer any unused estate tax exemption to the surviving spouse
  • Unlimited lifetime gifting
  • A multitude of other planning opportunities that are available for opposite-sex married couples.

Income Tax

Similarly, a same-sex married couple is treated the same as other married couples for federal income tax purposes.  For 2013, it is the general rule that legally married same-sex couples must file tax returns either as married filing jointly or married filing separately.  These individuals may also choose to amend previously filed returns for those years still open under the statute of limitations, which is generally the three preceding years.

IRAs

The ruling also now allows the surviving spouse in a same-sex marriage who is named as beneficiary on his or her spouse’s IRA to roll the account over on the death of the first spouse and take advantage of enhanced income tax deferral.

There remain many other unanswered questions about the applicability of this ruling to other federal programs.  For example, the Social Security Administration has yet to determine how their programs will be administered for the benefit of same-sex married couples, but encourages anyone who believes they may qualify to promptly apply.  Over the course of the coming months, we hope for additional clarification on these and other issues.

In Michigan, a state that does not currently recognize same-sex marriages, the above federal tax provisions still apply.  However, state laws remain unaffected by the DOMA ruling.  This means that without an effective estate plan there is no statutory provision granting a same-sex partner – even if legally married in another state – any presumptive standing to be appointed guardian, conservator or personal representative or to receive any portion of the estate upon a partner’s death.

Therefore, it remains very important that same-sex Michigan resident couples address these issues with a comprehensive estate plan to make sure that their intentions are met as fully as possible and to take best advantage of the new DOMA rules and regulations.

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