New York State's Marriage Equality Act
On June 24, 2011, New York State enacted the Marriage Equality Act (the “Act”), making it the sixth and largest state to allow same-sex couples to marry and enjoy the financial benefits and legal rights currently only afforded to married opposite-sex couples. The Act becomes effective July 24, 2011, however, these benefits will not apply at the federal level, because of the Defense of Marriage Act (“DOMA”). DOMA, enacted by Congress in 1996, defines “marriage” as between a man and a woman, and “spouse” as a person of the opposite sex. Thus, the Act’s implications on tax and estate planning are NYS specific for the time being.Income Taxes for the Same-Sex Married
Couple A potential tax benefit will be that married same-sex couples will now be able to file a joint income tax return in NYS. However, they still will not be able to file a joint federal income tax return. Also, previously employers were required to include in an employee’s income, the value of the employer provided health coverage to a same sex partner. The value will still be taxable for federal purposes but will now be considered a tax free benefit for NYS income taxes if the couple is married. A same sex surviving spouse will not be able to obtain the Social Security benefits of his or her spouse but may be able to take unpaid leave under the Family and Medical Leave Act (“FMLA”) when their spouse is ill since the FMLA definition of “spouse” defers to the law of the state in which the employee lives. These issues are further complicated by the fact that the Obama Administration issued a statement on February 23, 2011 that it would no longer continue to defend DOMA, thus, leaving us with a bifurcated tax scheme and no clear direction at the federal level.Gift and Estate Taxes for the Same-Sex Married Couple
Although the Act does not specifically amend the NYS Surrogate’s Court Procedure Act (SCPA) or the Estate, Powers and Trusts Law (EPTL), the Act clearly states that its intent is to do so. Therefore, such rights as the right of a surviving spouse to elect to take a portion of the deceased spouse’s estate where the terms of a will disinherit a spouse (referred to as a right of election) are codified into law for same-sex married couples. Additionally, when a spouse dies intestate (without a will), the surviving same-sex spouse will now have standing to petition the court for Letters of Administration, to bring a wrongful death suit, and to bring a claim for worker’s compensation benefits. And, of course, a same-sex spouse may now inherit free of New York Estate Tax utilizing the unlimited marital deduction previously only available to opposite sex married couples. Unfortunately, where the decedent same-sex spouse’s estate is over $5,000,000, the estate is still subject to federal estate tax. Moreover, although NYS already has no gift tax, gifts to same-sex spouses are not recognized under federal law, and therefore subject to tax. Similarly, whether NYS will allow a separate state Qualified Terminable Interest Property (QTIP) election for property passing to a spouse allowing the surviving spouse to receive the unlimited marital deduction, is not yet clear, but the NYS Department of Taxation and Finance has stated that direction is forthcoming.Tax and Estate Planning for the Same-Sex Married Couple
Same-sex couples and their tax and estate planners should review their assets and take careful consideration before making decisions. A bifurcated approach to their estate plan to make sure they are covered for federal as well as state purposes is a necessity and reviewing all tax and legal options is a must, i.e. whether to file joint or individual income tax returns in NYS. A periodic review of all beneficiary forms is also needed to ensure a same-sex spouse is not disinherited because of an omission. Marriage still does not ensure a spouse will inherit all assets, as pensions and other federal benefits are governed by federal law and therefore subject to DOMA.
Should you have any questions related to this Tax Flash, contact your Marcum LLP tax professional.