Windsor Argument Today at Supreme Court is about Estate Tax

I am taking a break from my series of posts on the Basics of Probate Administration in the District of Columbia to address current events before the Supreme Court that could have wide ranging impact on estate planning.

I mentioned about a year ago that the Supreme Court rarely hears estate planning cases because rarely do estate planning matters reach federal or national matters that would need the Supreme Court to weigh in on. Last term, the Supreme Court’s held oral arguments and issued a ruling denying that a child conceived post-death is entitled to Social Security Survivor Benefits. But, the Supreme Court will address an estate planning issue this week as the court addresses state and federal laws that involve the issue of same-sex marriage.

Yesterday, March 26, 2013, the Supreme Court held oral arguments over whether California’s Ballot Proposition 8 that amended the California Constitution, which provides that “only marriage between a man and a woman is valid or recognized in California.  You can read and listen to the oral arguments from yesterday by clicking here.

Today, the Supreme Court hears another argument, in U.S. v. Windsor (“Windsor”), related to same-sex marriages.  In this case, it involves federal laws and benefits. In 1996, the U.S. enacted the Defense of Marriage Act, or DOMA, which stated that federal benefits and inter-state recognition division of marriage would only apply to opposite-sex marriages. Section 3 of DOMA codifies the non-recognition of same-sex marriages for all federal purposes, including insurance benefits for government employees, Social Security survivors’ benefits, immigration, and the filing of joint tax returns.

While the bigger picture of Windsor is on same-sex marriage, drilling down into the facts of Windsor demonstrates that at the heart of the case is estate taxes and the surviving spouse in the Windsor wanting to minimize the taxes she would owe. Gee, just like every one else wanting to minimize their tax liability.

Edie Windsor and Thea Spyer, her partner, were married in 2007, in Canada. While New York recognized the marriage, the federal government did not. When Spyer got sick, she chose to leave her entire estate to Windsor when she died. If Windsor had been a man, she would not have had to pay any estate tax because of the unlimited marital deduction.  The unlimited marital deduction provides that a married person has the ability to gift/transfer unlimited amounts of money to the other spouse without paying any type of tax on that transfer.  In Windsor, Edie Windsor had to pay $363,000 in federal estate taxes on the inheritance she received from Spyer.  As such, Edie Windsor argues that DOMA violates the equal protection clause of the U.S. Constitution that does not grant the same protections to same-sex “married” couples as it does to opposite sex ones.

It will be interesting to see where the Supreme Court Justices go on this one because of the number of inflection points in the case. In 2011, President Obama, has stated his administration will not defended Section 3 of DOMA in court.  Some legal experts have argued based on the administration’s decision not to defend Section 3 of DOMA then there is no “case or controversy” pursuant to Article III of the U.S. Constitution and the case should be dismissed. If the case is dismissed, this would uphold the Second Circuit Court of Appeal’s decision affirming the District Court’s ruling that Section 3 of DOMA is unconstitutional. One some level, I find this outcome unlikely, since why would the Justice take up the matter to merely dismiss the case.

Another point is the facts are not extremely great for Edie Windsor. While New York recognizes same-sex marriages, it is not as cut-and-dry as same-sex marriage proponents argue. The issue with Windsor is Spyer’s death in 2009. Spyer’s estate and tax issues would be based on federal and state laws in place in 2009 not changes in laws in later years. There is a 2006 New York Court of Appeals ruling that held the “New York Constitution does not compel recognition of marriages between members of the same sex.” Hernandez v. Robles, 885 N.E.2d 1, 5 (N. Y. 2006).  Subsequently, but not before 2009, there were New York cases that had contradictory outcomes to Hernandez.

Given the controversial nature of same-sex marriages within the political spectrum, it will be interesting to see what the Justices decided. I don’t think I would want to be in their shoes.