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Equal Tax Treatment for Same-Sex Couples in the Wake of Recent Supreme Court Ruling and IRS Guidance

MSK Client Alert
January 2014

Same-sex marriages now are being recognized under federal tax law for the first time. In June 2013, the Supreme Court released its decision in United States v. Windsor, 530 U.S. 12 (2013), declaring Section 3 of the federal Defense of Marriage Act (DOMA) unconstitutional. In Revenue Ruling 2013-17, the IRS detailed the tax-law consequences of the federal government’s new recognition of same-sex marriages. This update describes the details of the IRS’s ruling and reviews opportunities it presents for significant tax savings for high-net-worth same-sex married couples.

Previously, the federal government did not recognize same-sex marriages, even when those couples were legally married under state law, so opposite-sex couples enjoyed certain income- and estate-tax benefits denied to same-sex couples. Under the new law, however, marriage is marriage, and same-sex couples can now enjoy several significant advantages considered integral to opposite-sex tax planning for years.

Same-sex married couples should consider and review the following issues with their estate and income tax advisors:

Nuance: Trusts for the benefit of the surviving spouse must be drafted specifically to take advantage of this; it is not automatic. Because the marital deduction previously did not apply to same-sex couples, many trusts are drafted without the technical language to achieve the tax deferral. Now that tax deferral is possible, it is critical that same-sex married couples revisit their estate plans if they desire to pass assets to each other in trust, so that the technical language can be added.

Importantly, you do not need to live in a state that recognizes same-sex marriage to receive the tax benefits. The new federal law applies regardless of where a couple resides, so long as the marriage is valid under the laws of the state where the couple was married. For example, a same-sex couple legally married in California (which recognizes same-sex marriages), who then moved to Texas (which does not recognize same-sex marriages), will be treated as married for all federal tax purposes.

However, the new law and tax benefits do not apply to registered domestic partnerships, civil unions, or other similar relationships. Couples currently in these types of unions may wish to weigh the benefits of getting married, as there are now serious tax benefits to doing so for high-net-worth couples who wish to leave their assets to each other.

Please contact any member of our Trust and Estates Practice Group if you have any questions regarding this development or how your estate plan could be affected.

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