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Estate Tax Case to be Heard by US Supreme Court

Dear Mr. Premack: I’ve read in the Express that the Windsor case will be argued before the US Supreme Court this week. Can you outline the dispute and situation? Can the court’s eventual decision have an effect on estate taxes owed by couples who live in Texas? – T.R.

The Windsor case deals with a same-sex couple who were legally married in Canada in 2007. Edith Windsor and Thea Spyer married when they were in their 70’s, after having spent most of their lives together. Spyer died in 2009 from multiple sclerosis. Her Will left her estate to Windsor, and appointed Windsor as her Executor.

The federal government, under the 2006 Defense of Marriage Act (DOMA), will not recognize same-sex marriages. As such, the Spyer estate was required to pay, and did pay, $600,000 in federal and state taxes. If they had been opposite-sex spouses, no tax would have been paid. Windsor sued, alleging that DOMA violates the equal protection provision of the US Constitution.

The 14th Amendment provides that “no state shall… deny to any person within its jurisdiction the equal protection of the laws.” The 5th Amendment, among many other rights, provides that, “No person shall be … deprived of life, liberty, or property, without due process of law…” The US Supreme court has held that due process requires the federal government to guarantee equal protection under the 14th Amendment. The Constitution requires that neither a state nor the federal government may deny due process or equal protection under the law.

On Wednesday, March 27 (2013) oral arguments will be held before the court to determine if DOMA denies same-sex spouses equal protection under the law. Under federal tax law, a married couple is given a special break from the federal estate tax, called the “unlimited marital deduction”. If one spouse dies and leaves assets to the other spouse, there is zero federal estate tax payable regardless of the size of the estate.

For instance, Joe and Betty are married and have a combined estate of $4.2 million. Joe dies, leaving his assets to Betty. Because they were opposite-sex spouses, no estate taxes are due from Joe’s estate. Betty will receive all the assets without losing money to taxation. Contrast that to: Thea and Edith are married and have a combined estate of $4.2 million. Thea dies, leaving her share to Edith. Because DOMA says that same-sex spouses are not to be treated as married, Thea’s assets are subject to the estate tax. Edith will not receive all the assets; she will lose a significant amount due to taxation. Windsor alleges that difference is unconstitutional.

The US District Court for the Southern District of New York and the Court of Appeals for the Second Circuit ruled for Windsor. The courts found that the goals Congress announced when it passed DOMA had no relationship to the actual effect of the law, and that it deprives same-sex couples equal protection under the law. The Obama administration agreed and declared that it would not challenge the rulings. Members of the US House of Representatives (called the “Bipartisan Legal Advisory Group”) claimed legal standing to continue the battle, and appealed to the US Supreme Court. One of the issues before the court is whether the Bipartisan Legal Advisory Group does have legal standing to continue the challenge.

How will the court rule? That is unpredictable. Will the ruling have an effect on estate taxes for couples in Texas? If by couples you mean “same-sex couples” the answer is that the court’s ruling would indeed have an effect. A ruling that agrees with Windsor’s position would NOT legalize same-sex marriage in Texas (that is an issue that can only be addressed by the Texas legislature). But it would mean same-sex couples legally married elsewhere but residing in Texas cannot be denied equal protection under the law. Oral arguments before the court will be recorded, and will be posted at {Note: the court ruled for Windsor, granted the tax exemption, and ruled that DOMA’s restrictions were unconstitutional.}

Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2012) practicing estate planning and probate law in San Antonio.

Original Publication: San Antonio Express News, March 25, 2013


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