I talk a lot on this blog about the income tax implications to same-sex married couples of the Defense of Marriage Act being struck down.
But like a lot of folks, I tend to gloss over the estate tax implications because estate tax seems to affect so few people.
Still, it’s important to reflect on the estate tax as it relates to same-sex married couples in this post-DOMA world.
What is Estate Tax?
When a person dies, their estate may be subject to estate tax if the value of the things they own (cash in the bank, the value of their property, etc.) totals more than the estate tax exemption amount. For 2014, the exemption amount is $5.34 million.
Estates with a value above $5.34 million are subject to estate tax.
There’s an exception for married couples, referred to as the “unlimited marital exemption.” If the estate passes to a surviving spouse, no estate tax is owed, regardless of the value of the estate.
Implications for Same-Sex Married Couples
When DOMA existed, the unlimited marital exemption didn’t apply because the federal government didn’t recognize same-sex marriage.
So for couples whose estate was large enough, estate tax was a big problem.
Often Glossed Over
I’m as guilty as anyone of glossing over the estate tax. I can’t fathom having $50,000 of assets, let alone $5 million. The vast majority of people will never need to worry about the estate tax.
But it’s a mistake to completely ignore estate tax, especially when we talk about the post-DOMA landscape. Because if estate tax does apply to someone, it’s a big tax hit.
It’s also important to talk about estate tax within the context of DOMA because the DOMA case — Windsor v. United States — was an estate tax case.
“Windsor” is Edie Windsor. Her spouse died in 2009 and had an estate large enough to be subject to estate tax. The estate passed to Edie, but because of DOMA, the marital exemption didn’t apply. Edie Windsor paid $363,000 of estate tax and then sued to get it back. That led to the historic Supreme Court case that struck down DOMA last June.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”