Supreme Court Approves Same-Sex Marriage: Tax and Legal Implications for Same-Sex Spouses

by Jackson Walker

On June 26, 2015, the Supreme Court handed down its decision in the landmark case of Obergefell v. Hodges. The Court held that the Fourteenth Amendment to the United States Constitution requires all states to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-state.

Writing for the majority, Justice Anthony Kennedy stated that:

No union is more profound than marriage, for it embodies the highest ideals of love, fidelity, devotion, sacrifice, and family. In forming a marital union, two people become something greater than once they were. As some of the petitioners in these cases demonstrate, marriage embodies a love that may endure even past death. It would misunderstand these men and women to say they disrespect the idea of marriage. Their plea is that they do respect it, respect it so deeply that they seek to find its fulfillment for themselves. Their hope is not to be condemned to live in loneliness, excluded from one of civilization's oldest institutions. They ask for equal dignity in the eyes of the law. The Constitution grants them that right.

United States v. Windsor

The decision in Obergefell comes just two years after the Supreme Court's ruling in United States v. Windsor. In Windsor, the Court held that Section 3 of the Defense of Marriage Act, which federally defined marriage as a union between one man and one woman as husband and wife, was unconstitutional under the Constitution's guarantee of equal protection under the law. The effect of Windsor is that the federal government must recognize same-sex marriages that have been approved by the states. Following Windsor, Texas same-sex married couples were granted the rights of married persons in a number of federal areas including federal tax benefits, active military benefits, federal employment benefits for employees of the U.S. government, and immigration benefits. However, until the Obergefell decision, Texas was not required to, and did not, permit or recognize same-sex marriages for purposes of Texas law. This left same-sex Texans who were married in a state that allowed same-sex marriage in a sort of legal limbo: if they got married outside of Texas, they were entitled to certain federal benefits of marriage, but Texas denied them all of the benefits of marriage under Texas law.

As a result of Windsor, and now Obergefell, the world is dramatically different for same-sex married couples in Texas. Thousands of laws have been affected by these two decisions. Below is brief summary of where things stand as a result of these Supreme Court decisions:

Income Taxes

Same-sex spouses are required to file their federal income tax returns as either married filing jointly or married filing separately. Depending upon individual income levels, marriage can raise or lower the income taxes owed by a same-sex couple.

Giving Property During Life or at Death

Same-sex spouses can give unlimited amounts of property to each other during life without causing federal gift tax to be owed. Same-sex spouses can leave unlimited amounts of property to each other at death without causing federal estate tax to be owed at the death of the first spouse.

IRA Rollovers

Same-sex spouses have the right to roll over a deceased spouse's IRA into their own IRA, a right not afforded to non-spouse beneficiaries. In many cases, a spousal rollover can provide increased income tax deferral and other tax advantages.

Community Property

Same-sex spouses should now be subject to the Texas community property regime. Under Texas law, property acquired before a marriage is considered a person's separate property. Property acquired during a marriage is presumed to be community property of both spouses, unless it is received by gift, devise, or inheritance (and can be proved to have been so received by "clear and convincing evidence"), or if otherwise agreed by the spouses. Income either spouse earns during the marriage is considered community property as is property purchased with income earned during the marriage. Dividends, interest and other income earned on either spouse's separate property during the marriage are considered community property. Like their heterosexual counterparts, if same-sex spouses desire to keep their respective estates entirely separate or if they would like to convert existing separate property into community property, they will need to enter into a marital property agreement that complies with Texas law.

Inheritance Rights of Surviving Spouse

If a person dies without a will in Texas, the laws of intestate succession direct the disposition of such person's property on death. For purposes of these laws, prior to Obergefell, same-sex couples were treated as legal strangers. However, when a married person dies without a will, the surviving spouse has certain inheritance rights to receive a deceased spouse's property. For example, when a married Texan dies without descendants, all of the community property would pass to the surviving spouse, all separate personal property would pass to the surviving spouse and one-half of all separate real property would pass to the surviving spouse.

Rights of a Surviving Spouse in the Predeceasing Spouse's Property

Surviving spouses in Texas have certain special rights upon a predeceasing spouse's death. For example, a surviving spouse is given an exclusive lifetime right of occupancy of the homestead as long as he or she elects to occupy it as his or her home, regardless of the disposition of the homestead that is directed in the predeceasing spouse's will. In addition, a predeceasing spouse cannot dispose of a surviving spouse's interest in community property at death, by will or otherwise. If the predeceasing spouse's will purports to dispose of a surviving spouse's property, the surviving spouse may make an election either (i) to assert the surviving spouse's property rights in lieu of receiving any benefits under the predeceasing spouse's will or (ii) relinquish any of the surviving spouse’s rights in property disposed of by the predeceasing spouse and accept the benefits given to the surviving spouse under the predeceasing spouse's will. This is commonly referred to as the Widow's/Widower’s Election.

Medical Decision-Making Authority

In Texas, marriage alone does not make one spouse the agent of the other for purposes of making medical treatment decisions on behalf of the other spouse who is physically or mentally unable to make decisions for himself or herself. However, the Texas Consent to Medical Treatment Act allows a spouse to serve as surrogate to consent to medical treatment on behalf of an adult patient in a hospital who is comatose, incapacitated or otherwise mentally or physically incapable of communication and who has not otherwise designated an agent. A spouse has the first priority under the statute to make such treatment decisions.

Hospital Visitation Rights

Historically, some hospitals restricted hospital visitation rights to spouses and blood relatives only. In response to perceived injustices, President Obama issued a memorandum recommending that the U.S. Department of Health and Human Services, or HHS, detail guidelines for hospital visitation that prohibit discrimination based on "race, color, national origin, religion, sex, sexual orientation, gender identity, or disability." HHS issued such regulations in November 2010. The regulations, applying to hospitals participating in Medicare or Medicaid, prohibit these types of discrimination in hospital visitation and made it clear that designated visitors should be permitted access to patients regardless of whether they have a legally recognized relationship.

Duty of Support and Spousal Privilege

Spouses have the duty to support each other and receive the protection of spousal privilege (i.e., a confidential communications privilege and a privilege not to testify against a spouse in a criminal case).

Decisions Regarding Disposition of Remains

Unless another person is designated in a written instrument signed by the predeceasing spouse, the surviving spouse has the right to control the disposition, including cremation, of the predeceasing spouse's remains, has responsibility to inter the remains, and is liable for the reasonable cost of interment.

Things We Do Not Know

There is still lack of clarity as to how certain of these changes will work, mostly oriented around the time of effectiveness of the Obergefell decision. The decision indicated that Texas law prohibiting same-sex marriage was not constitutional. That being the case, is the validity of a same-sex marriage in Texas (and the rights associated with it) going to be effective from the date of the court decision, or, if the Texas prohibition was never constitutional, from the date of a marriage that predates the decision? This question applies to issues such as the following:

  • When will a couple's community property begin to accrue?
  • When will spousal benefits under social security benefits or VA rules (both of which were conferred based on a marriage being recognized in the state of domicile) begin to accrue?
  • If a married Texas person died after otherwise legal marriage but before the date of the Obergefell decision, does Texas law now allow that person to claim an interest in the estate under the rules of intestacy?

Texas has informal (common-law) marriage that is statutorily defined as a man and a woman (1) agreeing to be married, (2) living together in Texas as husband and wife, and (3) representing to others that they were married.

  • Will this statute now be construed to apply to same-sex couples?
  • If so, will a same-sex informal marriage that predates the date of the Obergefell decision be conferred legal status based on the unconstitutionality of the existing law?
  • On what date would the effectiveness of such a marriage begin?

Time, and likely future court decisions, will clarify these questions.

Estate Planning Review

In light of these major changes, it is important that same-sex spouses with existing estate plans contact one of our estate planning attorneys to discuss the following:

  • Does the dispositive scheme of the existing estate plan still make sense given that spouses can give unlimited amounts of property to each other during life and at death without triggering gift or estate tax?
  • How do the spouses wish to address the characterization of their property as separate or community property after marriage?
  • Are existing beneficiary designations on retirement accounts still appropriate? Is spousal rollover desired?
  • Does the estate plan contain a grantor retained income trust (a "GRIT")? If so, GRITs are no longer available for same-sex married couples.
  • Existing trusts should be reviewed to determine if a same-sex spouse is currently serving as trustee. The trust may now be a grantor trust because the grantor is deemed to have the powers of his or her new spouse.

For same-sex committed couples or spouses without any existing estate plan, it is equally important to contact one of our estate planning attorneys to discuss planning for the disposition of property at death, the designation of agents to make property and health care decisions in the event of incapacity, and many of the other unique non-tax driven considerations (e.g., family dynamics) that apply in the context of planning for same-sex committed couples and spouses.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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