estate planninglegal analysismarriage equality

The IRS Takes a Bite Out of DOMA, Pt 4

By November 13, 20134 Comments

Last week’s article was the third in this series covering the court cases and government rulings that have been issued over the last several months.  Today’s article, the last in the series, will consider migrating same-sex couples, i.e., couples who move from a state with one set of marriage equality laws to a state with a different set of marriage equality laws.  With respect to marriage, all couples fall into 3 basic mindsets: lawfully married, intending to marry, or not reached the fence yet. For the sake of this article, we’ll also put states in 3 basic categories: friendly, unfriendly, and grey, such as Wisconsin.

Preparing to Move - Packing BoxesLawfully married couples who migrate to an unfriendly state, will likely have state income and estate tax issues, presuming the state has an estate tax. If they have or plan to have children, a problem may emerge involving parental recognition and rights. Also, legal problems involving healthcare may arise, such as decision-making authority and visitation rights in medical emergencies. Lawfully married couples residing in friendly states should think long and hard before moving to unfriendly or grey jurisdictions.

Married same-sex couples in a grey state should consider the worst-case scenario and take lessons from living somewhere like Alabama.

One would think that the easiest advice to give married couples in a friendly state would be, “STAY PUT.” However, tax minimization and relationship recognition aren’t always the most important factors LGBT families face. Still, if all else is equal, they should STAY PUT.

If a couple is engaged or intends to wed, they should consider all of the factors. Moving by itself is often a relationship destroyer, regardless of gender makeup. Add to that the stress of relationship recognition issues and stir in income tax burdens for good measure, and the couple may be divorced even before getting married. So great thought should be given to moving, especially if moving soon before or after the wedding.

If a couple has yet to seriously consider marriage, they should travel together. If they begin considering marriage, they should move to a friendly state.

A friendly hypothetical always helps to illustrate a point:

Facts: Chris and Chaz marry in Iowa in 2010, move to Indiana, have a baby girl, Sarah, and Chris is killed in Indiana in 2012. Now Chaz’s attorney must file an estate tax return. Chris was also a transgender.

Points to ponder:

  1. Was their marriage was valid?  Iowa legalized same-sex marriage in 2009; they were married in 2010, so their marriage was lawful.
  2. The estate administration lawyer filed estate and income tax returns within 9 months of Chris’s death; can the income tax return be amended now? Yes; the return is inside the statute of limitations.
  3. Should the return be amended to reflect the marriage? Good question. It depends on potential advantages and disadvantages.
  4. Can the estate tax return, which was filed on June 21, 2012 be amended and should it be? Yes and it depends on a number of factors.

Another hypo: If Indiana’s wrongful death statute required payment only to the spouse or children, does Chaz have standing to even claim? No, unless Chaz is willing to renounce their same-sex marriage which would be demeaning and a circumstance no one should have to endure.

Also a final wrinkle is the fact that because Chris was the biological parent, Chaz would likely have to apply for guardianship before being able to act on behalf of baby Sarah as an heir.

Though Windsor, Perry, and the government’s guidance substantially increased marriage equality for LGBT couples, the decisions and rulings also resulted in more patches and landmines for migrating LGBT couples to navigate.

Biting DOMA was good, but chewing the entire statute up would have been much more satisfying for those who want and deserve complete marriage equality.

The IRS Bites DOMA Pt 1 | 2 | 3 | 4

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