Love, Taxes & Equality?

On June 24, 2011, New York Governor Andrew Cuomo signed the Marriage Equality Act (the "Act"), thereby granting same-sex couples the right to marry in New York. The Act confers the rights and benefits currently enjoyed by opposite-sex married couples under state law to same-sex married couples.

On June 24, 2011, New York Governor Andrew Cuomo signed the Marriage Equality Act (the “Act”), thereby granting same-sex couples the right to marry in New York. The Act confers the rights and benefits currently enjoyed by opposite-sex married couples under state law to same-sex married couples.

The new law states simply: “A marriage that is otherwise valid shall be valid regardless of whether the parties to the marriage are of the same or different sex. … No application for a marriage license shall be denied on the ground that the parties are of the same, or a different, sex.”

Historic Legislation

Just how large is the lesbian and gay population in the United States? According to a study recently conducted by the Williams Institute at the UCLA School of Law, an estimated 3.5 percent of adults in U.S. identify as lesbian, gay or bisexual. That figure implies that there are approximately 9 million adults in this group, roughly equivalent to the population of New Jersey. The historic nature of this new legislation has not been lost on anyone who is following this legal issue in the United States. New York is now the sixth state in the union to legalize same-sex marriages.

The law goes to great lengths to be sensitive to, and preserve certain protections for, religious institutions and members of the clergy. Thus, as stated in the legislation’s supporting memorandum, “[t]o ensure that the bill does not improperly intrude into matters of conscience or religious belief, the bill affirms that no member of the clergy can be compelled to solemnize any marriage.” Thus, if a priest or rabbi refuses to perform a marriage ceremony for a same-sex couple, he or she will not have to worry about incurring any liability. And yet, for all of the talk about religion and polarized positions on this issue, the new law also attested to something noteworthy: the concerted effort by some Christian and Jewish clergy to work collectively to refocus the debate away from rigid morality espoused by foes of the legislation.

Without these united efforts, the bill may not have had enough wind in its sails to win support within the state Senate. Such unity is also reflected in the group of diverse politicians and organizations that coalesced around a theme, stated in the official memorandum accompanying the legislation that was relied upon to support the new law, and that will likely reverberate throughout the rest of the country: The “freedom to marry” is, in the words of the United States Supreme Court, “one of the vital personal rights essential to the orderly pursuit of happiness by free people.” … Just as the right to marry confers important benefits on individuals, the institution of marriage produces incalculable benefits for society, by fostering stable familial relationships. Same-sex couples who wish to marry are not simply looking to obtain additional rights, they are seeking out substantial responsibilities as well: to undertake significant and binding obligations to one another. … Granting legal recognition to these relationships can only strengthen New York’s families, by extending the ability to participate in the crucial social institution to all New Yorkers.

State vs. Federal Tensions

Although New York is not the first state to legalize same-sex marriage, the Act will likely energize support for the gay-rights movement on pending same-sex marriage legislation in other jurisdictions. The Act also exposes the Achilles’ heel of such legislation, i.e., that while states may be willing to recognize same-sex marriage and confer state-based rights, without federal legislation acknowledging these same rights, the discrimination against these couples will continue unabated. Many of these newly conferred state-based rights are too overshadowed by federal tax legislation to have much impact in overcoming some of the most burdensome and discriminatory characteristics that are the basis of complaints by same-sex couples.

The Wealth Planning Context

With the enactment of the Act, a surviving spouse of a same-sex marriage is now entitled to the same rights and benefits as other New York state residents if the other spouse dies a domiciliary of New York. However, notwithstanding the magnitude of the change that has taken place in New York with this new legislation, many of the benefits conferred by those states recognizing same-sex marriage have no recognition at the national level. Our federal government, as enunciated in the Defense of Marriage Act (DOMA), limits the definition of marriage to a union “between a man and a woman.” Nonetheless, we are now getting a hint of how large this issue can be in the next presidential election. It was recently reported by The New York Times that President Obama will endorse a bill to repeal DOMA.

The Act will certainly affect the estate planning of same-sex couples and the rights of the surviving spouse in estate proceedings. Below are some of the more noteworthy wealth planning themes.

Dying Without A Will (Intestate)

Under New York’s new law, if a same-sex spouse dies without a will, the surviving same-sex spouse, and any of the biological or adoptive children of the decedent, will be the first in line to inherit the assets of decedent’s estate. Before the new law, a same-sex surviving partner risked having his or her predeceased partner’s assets pass in intestacy to the decedent’s parents or other lineal descendants, as the surviving partner may not have been considered a “distributee.” This situation has now been addressed, and the same-sex surviving spouse, and any of the biological or adoptive children of the decedent, will inherit first before any other family members.

New Status As A Distributee & The Right To “Object”

Because of the law’s complexity as it relates to federal estate tax planning, it would not be unusual to see a rise in estate litigation in those states that have adopted same-sex marriage laws. The complexity of drafting estate planning instruments, while taking into account the new Act, cannot be underestimated. One interesting byproduct of the new law is that it will enable surviving spouses in same-sex marriages to have standing and be considered a distributee, and thus a necessary party, to certain estate proceedings in the Surrogate’s Courts (New York’s probate courts). These surviving spouses would be allowed to raise objections to the probate of a last will and testament. The basis of those objections is usually fraud, undue influence and lack of capacity. Without being considered a distributee in the Surrogate’s Court, a surviving same-sex spouse might have very limited legal remedies available in such estate proceedings.

Finally, a surviving same-sex spouse will now have the right to invoke his or her “right of election” in any estate proceeding. Thus, absent the existence of prenuptial planning, same-sex couples will now be eligible to receive a share of the deceased spouse’s estate in the amount of $50,000 or one-third of the net estate (whichever is greater) regardless of the terms of the decedent’s last will and testament. Of course, as noted herein, the federal tax treatment of such inheritances will certainly be different as compared to opposite-sex marriages.

No doubt, much will be written on this subject in the near future. SGR will continue to keep its clients apprised of noteworthy developments on its Estate Planning & Wealth Protection Blog.

Share via
Copy link
Powered by Social Snap