There is an unlimited marital federal estate tax exemption, so a surviving spouse can inherit any amount of money from his or her deceased spouse without incurring any estate tax liability.
Same-sex marriages are legal in several of the states and in some foreign countries. However, if an American taxpayer is legally married to someone of the same sex the federal government won’t recognize the marriage. This is because of provisions contained within Section 3 of the Defense of Marriage Act.
Section 3 defines marriage as something that can only take place between a man and a woman.
In 2009 a woman named Thea Spyer passed away, leaving a considerable amount of money to her partner Edith Windsor. The two women were legally married in Canada after spending some four decades together as a couple.
The federal government imposed an estate tax levy exceeding $360,000 on this asset transfer. Edith Windsor filed suit, contending that the Defense of Marriage Act is unconstitutional.
The first court to hear the case agreed with Windsor, and the Court of Appeals agreed as well, and they ordered a refund of the tax levy.
Now the case has been escalated all the way to the highest court in the land. The United States Supreme Court is hearing arguments in this case at the time of this writing.
If the Court finds in favor of Windsor the playing field will be considerably altered for affluent gay couples who are engaged in the process of estate planning. We will continue to follow this case, and when a decision is rendered we will examine its impact.