(Dow Jones) Same-sex couples pay more to the government than their heterosexual counterparts under the federal estate tax.
In 2009, the different treatment based on gender will affect an estimated 73 same-sex pairs, and cost them each more than $3.3 million on average.
That is the conclusion of a paper published this month by the Williams Institute at the UCLA School of Law that bases its findings on data from several government sources. The study also found it would cost the federal government about $238 million in 2009 to equalize the treatment of couples, and looks at how same-sex couples will fare in the future under the estate tax.
In fact, that future is uncertain. The estate tax is set to disappear in 2010 for one year unless lawmakers step in. Proposed legislation would continue the 2009 parameters of the tax indefinitely, exempting estates under $3.5 million, or up to $7 million for a married couple, and tax inheritances above that amount at 45%.
Michael D. Steinberger, an economics professor at Pomona College and public policy fellow at the Williams Institute who authored the study, calls the different gender treatment "a costly implication of legal discrimination against gay and lesbian couples."
The estate tax allows married heterosexuals to transfer unlimited assets to spouses at death without incurring estate tax, but same-sex couples are limited in their ability to transfer. That is because of a federal law that allows a deduction for unlimited bequests to a spouse that is not available to unmarried partners.
The unlimited marital deduction, which has existed since 1981, offers a distinct tax advantage for heterosexuals. But, even same-sex couples married in the handful of states that allow same-sex marriage don't qualify for the federal deduction.
Same-sex couples would continue to lose out if the estate tax is repealed in 2010. That is partly because of a change in the way the cost basis of assets would be valued for tax purposes. Under a repeal, taxpayers would return to what is known as the carryover basis. An heir's tax basis in property is "carried over" from when the person who bequeathed originally got it; this is a big difference from current rules, which let heirs step up the basis to what it was worth at the death of the person.
In 2010, a bequest of $10 million in stock that would generate no tax for a married couple could generate $450,000 in capital gains taxes for a same-sex couple, according to the report.
Copyright (c) 2009, Dow Jones. For more information about Dow Jones' services for advisors, please click here.