Washington, D.C., joins the list of jurisdictions offering marriage to same-sex couples. In May 2004, Massachusetts became the first state to allow same-sex couples to marry. Since then, same-sex marriage has been legalized in Connecticut, Iowa, New Hampshire, Vermont, and now the District of Columbia. California allowed marriages for a brief period until a voter initiative denied the right. Additionally, California, New Jersey, and other states allow couples to enter “Domestic Partnerships” or “Civil Unions” with rights similar to that of marriage.
While many states offer same-sex couples the right to marry or similar arrangements, they are still not recognized for federal law purposes because of the Defense of Marriage Act. Thus, there is a differential in treatment of same-sex couples that may be negative in some ways and positive in others. For example, a same-sex couple who are married in Massachusetts cannot qualify for the marital deduction at the death of the first spouse. In fact, they are considered unrelated parties under federal law. That’s the downside.
The upside is that they can enter into transactions that would be prohibited to related parties under federal law. For example, if one spouse had a loss in an investment and wanted to harvest the loss while retaining the asset, they could sell the asset to the other partner without falling prey to the related party rules. Similarly, the wealthier spouse could enter into a grantor retained income trust (“GRIT”), which is not allowed for “Members of the family” under federal law.
In dealing with same-sex couple clients, remember to step back and look at the situation carefully. There are opportunities, as well as hurdles. Can you think of any unique opportunities or hurdles for same-sex couples in your state?
Steve Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
(800) 846-1555
www.aaepa.com
- The Magic of Grantor Trusts - September 19, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - August 15, 2023
- Double Your Gifting with Spousal Gift-Splitting - January 11, 2022
