Today and tomorrow, the U.S. Supreme Court will be hearing oral arguments in two cases that could change the scope of marriage in the United States. Today, the Court is hearing oral arguments in Hollingsworth v. Perry, and tomorrow, the Court will be hearing oral arguments in the case of United States v. Windsor.

The cases contain a myriad of questions, but if the Court decides to get past the procedural questions and issue rulings on the substance, significant changes could be in store regarding the Defense of Marriage Act (“DOMA”) and the federal treatment of same-sex marriages. For a discussion of all of the various constitutional issues the Court may address in these cases, see Erwin Chemerinsky’s article, “Chemerinsky: Same-sex marriage battle goes before the Supreme Court“.

We have previously addressed the issue of estate planning for same-sex couples, and have followed the Windsor case, as it directly affects the federal estate tax. You can re-read those posts here:

Planning for Same-Sex Couples
by Stacie Rottenstreich and Karin Barkhorn

When a Woman Loves a Woman (With Apologies to Percy Sledge…): Another Federal Judge Strikes Down DOMA
by Tiffany McKenzie and Larry Brody

When a Woman Loves a Woman: Another Federal Judge Strikes Down DOMA — Part II
by Tiffany McKenzie and Larry Brody

As Chemerinsky points out, if the Supreme Court strikes down Section 3 of DOMA, there are approximately “1,100 federal laws that provide benefits to married couples that will need to be offered to same-sex married couples”. I thought I would take this opportunity to review just one of those benefits, the marital deduction for estate and gift tax purposes.

If you’re a fan of The Shawshank Redemption (and if you’re not, you must not have ever seen it–go watch it), you may remember that inmate Andy Dufresne was able to elevate his status among the prison guards when he informed one of the guards about the ability to make a one-time gift of up to $60,000 to his spouse without having to pay any tax. In reality, for transfers made after 1981, Section 2523 of the Internal Revenue Code gives a donor an unlimited gift tax deduction (with some limitations) for lifetime gifts to a U.S. citizen spouse, and Section 2056 of the Code gives an unlimited marital deduction (with some limitations) for gifts upon a death to the deceased spouse’s surviving U.S. citizen spouse.

In order for the unlimited gift tax marital deduction under Section 2523 to apply, certain requirements must be met.  For a detailed discussion on these requirements, click here.  

In order for the unlimited estate tax marital deduction under Section 2056 to apply, certain requirements must also be met.  For a detailed discussion of these requirements, click here.

The aspect of the gift tax marital deduction and estate tax marital deduction that may change after the Court’s rulings in these two cases is the interpretation of the requirement that the spouses must be married either at the time of the gift or upon the death of the first spouse. Pursuant to DOMA, for purposes of federal laws, a marriage must be between a man and a woman. Therefore, according to DOMA, same-sex couples who were legally married in one of the states or foreign countries that currently allows same-sex marriage would not qualify for the gift tax or estate tax marital deduction. This is exactly what occurred in the Windsor case. If the Court makes a ruling that in any way requires the federal government to recognize valid same-sex marriages for tax purposes, these marital deductions will begin to apply to married same-sex couples and the impact of recognizing same sex marriages would likely be felt throughout the U.S. tax system, including, most notably, same-sex married couples could likely begin filing joint income tax returns.