Genesee Valley Chapter — The Real Cost of DOMA

The Real Cost of DOMA

By Scott Forsyth A version of this article appeared in the ‘Daily Record’ on December 1, 2010. Your spouse, whom you have cherished more than 40 years and whom you married two years ago, dies. You deeply mourn her passing. She leaves you all of her property, worth $4.5 million. You are the executor of her estate. You need to file a federal estate tax return but figure to claim the marital deduction on the property passing to you. The deduction will eliminate all estate tax, federal and state. The no-tax outcome is true if you and your spouse are of the opposite sex. However, if you are of the same sex, you cannot claim the marital deduction, according to the Internal Revenue Service and the New York Department of Taxation and Finance. In 1981, Congress created the unlimited marital deduction, believing that it was only deferring the estate tax. Property would remain within the marital unit and, to the extent not consumed, would be taxed upon the death of the survivor. An earlier tax would fall “most heavily on widows.” Initially Congress left to the states the determination of marriage for purposes of the deduction. That changed in 1996 with the adoption of the ironically-named Defense of Marriage Act. Fearful of what the states might do, Congress declared that for all federal purposes marriage “means only a legal union between one man and one woman as husband and wife.” For 14 years the IRS and the Tax Department dutifully followed the command of Congress in their administration of the estate tax laws. Last month, Edith Windsor, a “widow,” struck back. Edith spent more than 40 years living with Thea Spyer in a tight, monogamous relationship. For 30 of those years she helped Thea battle multiple sclerosis. In 2007 they traveled to Toronto and were married, a valid union under Canadian law. New York recognized the marriage, see Martinez v. County of Monroe, 50 A.D.3d 189 (Fourth Dept. 2008). Thea died in February 2009, leaving all of her property, worth approximately $4.5 million, to Edith. She named Edith the executor of her estate. Edith filed a federal estate tax return and did not claim the marital deduction. Consequently, she paid estate tax of $363,000. Then this year she filed a claim for refund, stating that DOMA unconstitutionally discriminates on the basis of sexual orientation. As expected, in May the IRS denied the claim. Six months later, with the assistance of the ACLU, Edith went to court, seeking a full refund. Windsor v. United States, 10 Civ _____ (S.D.N.Y. 2010). When Congress adopted DOMA, it advanced four rationales for treating same-sex married couples differently from opposite-sex couples. Congress preferred heterosexual marriages, it was defending traditional notions of morality, it was protecting state sovereignty, and it was preserving scarce government resources. Edith argues that all of the rationales are irrational. The preference is not a rationale, just a restatement of the discrimination enshrined in DOMA. After Lawrence v. Texas, 539 U.S. 558 (2003), which struck down an anti-sodomy law, morality cannot trump privacy interests. By encroaching on state determinations of marriage, DOMA actually diminishes state sovereignty. Finally, recognizing samesex marriages will increase federal revenues, according to a 2004 study of the Congressional Budget Office. Edith is not the first to challenge the application of DOMA. In an earlier case, a court in Massachusetts held that the government could not deny various federal employment benefits and social security benefits to married and widowed plaintiffs because of DOMA, Gill v. Office of Personnel Management, CA No. 09-10309 (Dist. MA 2010). That case is on appeal to the First Circuit. Edith’s situation vividly illustrates the real costs of DOMA in a way that all planners can relate to. Expect more challenges like hers and the plaintiffs in Gill. A few more victories may lead to a facial challenge or U.S. Supreme Court review.