The IRS recently issued Revenue Ruling 2013-17. The Ruling provides that a married same-sex couple, married in a jurisdiction which respects the marriage, will be treated as married for all purposes by the IRS. This is regardless of whether the couple was domiciled in a state that respected their marriage when they got married or later moved to a state that did not recognize the marriage.
Let’s say a same-sex couple residing in Oklahoma travels to New York for the weekend. While in New York, they get married in accordance with the laws of the state of New York. They then return to Oklahoma, where they continue to reside. Since they are legally married under the laws of New York, they will be treated as married for purposes of federal tax law, regardless of where they live. This is notwithstanding the fact that Oklahoma treats them as “legal strangers.”
This goes beyond and is a significant expansion of the ruling in Windsor. As of today, there is no reason to treat a married same-sex couple any differently when drafting their trust(s), at least from a federal tax perspective. Of course, most states still do not respect same-sex marriages and the couple may face state estate / inheritance taxes, property tax reassessment, etc.
The revenue ruling also provides that a same-sex couple in a Civil Union, Domestic Partnership, or other similar non-marriage institution will not be treated as being married under federal tax law.
Also, if the couple had been married in the past, they have the option (but not the obligation) to amend any prior returns on which the statute of limitations has not yet run.
Going forward, when planning for married same-sex couples, it appears that married trusts are the vehicle of choice. If the couple is in a community property state and intends to stay in that state, a joint trust is likely the best choice. If the couple intends to move frequently, then separate trusts may be the better option. If the couple is married in one state and moves to another state that does not respect their marriage, it may not be possible to unwind their marriage in any divorce court. The state in which they were married may have a residency requirement for a divorce. If the state in which they live does not recognize their marriage, it is likely they will not hear a divorce case either. Separate trusts would make it far easier to divide the assets without the judicial assistance of a divorce court, if that becomes necessary. Same-sex marriage is too short-lived to have meaningful statistics on same-sex divorce. However, about half of traditional marriages end in divorce, so same-sex divorce is something to consider in the estate planning process, just like with a traditional married couple.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555