‘Kind of Brutal’
If the federal law is overturned and the same-sex spouses file jointly, their combined income is $800,000, of which $350,000 would be subject to the highest federal rate. “That’s kind of brutal,” Olivieri said.
Gay couples who are legally married in a state will experience pros and cons if the Supreme Court finds the act, known by its acronym DOMA, unconstitutional and have to plan for them, he said.
“The biggest impact for DOMA being repealed especially for wealthy same-sex couples is the availability of the federal estate-tax marital deduction,” said Lisa Siegel, senior wealth planner at Wells Fargo & Co.’s private bank unit. “That completely changes estate planning for same-sex couples.”
The case being heard by the Supreme Court involves New York resident Edie Windsor, who sued the federal government over a $363,000 estate-tax bill imposed after her spouse died. Same-sex spouses aren’t treated as married for federal tax purposes, which means when one spouse dies their assets don’t transfer to the survivor free of estate taxes.
Surviving Spouse
The effect of the marital deduction for heterosexual married couples is to defer federal estate taxes owed until the death of the surviving spouse.
“For an older couple with significant wealth––and especially if one spouse has a lot more wealth than the other––from a tax perspective it will make a lot of sense to get married” if the federal law is overturned, said Popovich of J.P. Morgan Private Bank.
Same-sex married couples would be able to use several types of marital trusts not currently available to them and benefit from so-called portability rules under federal estate-and-gift tax laws, said Siegel of Wells Fargo Private Bank.
The portability provision lets a widow or widower retain the unused portion of a deceased spouse’s lifetime exclusion from estate and gift taxes. That amount in 2013 is $5.25 million for individuals or $10.5 million for married households.