Special Considerations in Estate Planning for Same-Sex and Unmarried Couples

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Until June of 2013, the Tax Code regarded both unmarried partners and partners whose marriages are not recognized for purposes of federal law as "legal strangers." (1) In 1996, Congress passed the Defense of Marriage Act (DOMA). (2) Prior to the 2013 Supreme Court ruling United States v. Windsor, (3) Section 3 of DOMA mandated that, for purposes of federal law, the term "marriage" would only define the legal union between a man and a woman, and that "spouse" would mean only a person married to someone of the opposite sex. (4) In United States v. Windsor, the Supreme Court found DOMA's definition of "marriage" and "spouse" to be unconstitutional. Since marriage is a matter of state law, the IRS typically followed state law to determine whether a couple was married for purposes of the Internal Revenue Code. (5) However, in the aftermath of the Windsor decision, the IRS issued a ruling indicating that it would recognize all validly performed same-sex marriages as marriages for purposes of the IRC, regardless of whether the couple's state of domicile recognized same-sex marriages. (6)

Although same-sex marriages will be recognized by the IRS for purposes of federal taxes, couples who have validly-performed same-sex marriages, but who live in states that do not recognize same-sex marriages will not be considered married in their state. Married couples receive many tax and civil benefits simply for being married. (7) Unmarried couples and couples whose marriages are not recognized by their state of domicile are not privy to these same benefits. (8) Although same-sex couples may now take advantage of tax devices such as gift splitting, portability, and the gift and estate tax marital deduction, (9) they may still be unable to take advantages of other opportunities, economic and otherwise, available to other married couples. For example, many state have "default" rules in place to protect rights of surviving family members when a relative passes away. Usually, these same default rules do not serve to protect unmarried partners or same-sex married partners in states that do not recognize same-sex marriages, regardless of how intertwined their lives or finalices may be. (10) The rationale behind many of these default rules is to ensure that surviving family members do not become wards of the state when their family members die. (11) However, although marriage may have once served as a reliable proxy for mutual economic dependence, marital status is no longer the best indicator of how people share money today, and married partners are not the only couples to to be financially dependent on one another. (12) If a policy goal of these default rules is to ensure surviving spouses are not left without a means to support themselves once their partner dies, extending these default rules to unmarried couples would be a positive policy change. Some states have started to extend such default rules to unmarried couples, but there remains a significant lack of state-to-state consistency, making it difficult for same-sex married couples and unmarried couples to maintain consistency as they relocate. (13)

Family dynamics in the western world are evolving, and how people define their own family is no longer consistent with the "families" that many states recognize. (14) Although some states might not be keeping up with changing family dynamics, there are various ways that people who choose not to marry or whose marriages are not recognized in certain states can preserve their wealth while ensuring that their wealth stays in the hands of their loved ones.

Estate planning is necessary for all couples, but is particularly important for unmarried couples and couples whose marriages are not recognized in all states, as these couples may not necessarily be able to rely on default rules protecting their interests in their spouse's property. While estate planning can be stressful and emotional for married couples, these factors can be amplified to an even greater degree for unmarried couples. …


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