LISI: The Beginning of the Post-Windsor Cases

Thanks to generosity of Robert Keebler, CPA, MST, AEP (Distinguished) of Keebler & Associates, LLP, and Leimberg Information Services, we are pleased to provide to you a recently published article on LISI, which discusses two recent cases deciding issues facing same-sex married couples.

“As we all know, on June 26, 2013, the Supreme Court of the United States held that Section 3 of DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment. Section 3 of DOMA defined ‘marriage’ to mean ‘only a legal union between one man and one woman as husband and wife’ and ‘spouse’ to mean ‘a person of the opposite sex who is a husband or a wife.’ The change brought on by the Windsor holding affects more than 1,000 federal statutes and programs. Citing Windsor, two recent lower courts decided state law disputes in favor of the rights of same-sex couples.”

Michelle Ward provides members with commentary on O’Connor and Obergefell, two recent federal court decisions that shed light on the meaning of the US Supreme Court’s Windsor decision. Michelle L. Ward, of Keebler & Associates, LLP, concentrates her practice on estate planning, with primary focus on retirement distribution planning. Michelle has authored articles for Tax Management Inc.’s Tax Management Compensation Planning Journal, CCH’s Taxes Magazine, and BNA Tax Management’s online Insights & Commentary. Michelle can be contacted at 920.593.1703 or [email protected]

EXECUTIVE SUMMARY:

As we all know, on June 26, 2013, the Supreme Court of the United States held that Section 3 of DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment. Section 3 of DOMA defined “marriage” to mean “only a legal union between one man and one woman as husband and wife” and “spouse” to mean “a person of the opposite sex who is a husband or a wife.” The change brought on by the Windsor holding affects more than 1,000 federal statutes and programs. Citing Windsor, two recent lower courts decided state law disputes in favor of the rights of same-sex couples.

FACTS:

O’Connor
In O’Connor v. Tobits, a U.S. district court ordered in an interpleader action that a law firm’s profit sharing ERISA-qualified plan pay death benefits to the surviving spouse of a same-sex couple that married in Canada.

Sarah participated in her employer’s profit sharing plan. In 2006, Sarah legally married Jean in Canada. Sarah and Jean resided in Illinois which recognized this marriage as valid. Shortly after the wedding, Sarah was diagnosed with cancer and passed away in 2010.

The day before Sarah died, she named her parents as primary beneficiaries of the profit sharing plan (although the authenticity of the form was disputed). Jean did not sign any waiver of her right to the plan.

The profit sharing plan required that, upon the death of a participant to the plan, the plan administrator must pay death benefits in the form of a qualified Pre-Retirement Survivor Annuity in accordance with ERISA and the Internal Revenue Code. Both Jean and Sarah’s parents requested payment of the survivor annuity. In response to these competing claims the employer sponsoring the plan filed an interpleader action in January, 2011 naming Jean and Sarah’s parents as Defendants.

The issue presented in this case was whether the Supreme Court’s decision in Windsor requires recognition of a valid Canadian same-sex marriage for purposes of a benefits distribution pursuant to ERISA.

A profit sharing plan is covered by the Retirement Equity Act of 1984 which amended ERISA and the IRC to, in part, require certain plans to provide automatic survivor benefits and allow for the waiver of these benefits only with the proper consent of the participant and spouse. In other words, the surviving spouse is guaranteed to receive the account when the participant dies unless the spouse properly waives his or her right. In the O’Connnor case, it was undisputed that Jean did not sign any waiver of her right to the plan.

At the heart of this matter was whether Jean was Sarah’s “Spouse” pursuant to the plan language, therefore requiring a properly executed waiver before the plan can be paid to someone other than Jean.

The Court pointed out that prior to the Windsor decision, under the plain language of ERISA, the Code, and the plan at issue in this case, qualified retirement plans were under no obligation to provide benefits to same-sex Spouses. Following the Windsor ruling, however, the term “spouse” is no longer unconstitutionally restricted to members of the opposite sex, but now includes those same-sex spouses in otherwise valid marriages. The Court found that there “can be no doubt that [Jean] is [Sarah’s] ‘surviving Spouse’ under the Plan in light of the Supreme Court’s decision in Windsor” and, accordingly, Jean was entitled to the plan benefits.

Obergefell
The plaintiffs, James and John, are a same sex couple domiciled in Ohio who recently legally married in Maryland after more than 20 years together. John is currently a hospice patient dying from ALS. Although Maryland law recognizes their marriage as valid, their home state of Ohio specifically prohibits the legal recognition of same-sex marriages. Because of this, John’s Ohio death record will list his marital status at the time of his death as “unmarried” and will not record James as the surviving spouse.

John and James sought a court order declaring unconstitutional the Ohio laws forbidding recognition of legal same sex marriages from other states and requiring the Registrar of Ohio death certificates to record John as “married” and to record James as his “surviving spouse” at the time of John’s death. The court, in finding for the plaintiffs, stated as follows:

This is not a complicated case. The issue is whether the State of Ohio can discriminate against same sex marriages lawfully solemnized out of state, when Ohio law has historically and unambiguously provided that the validity of a marriage is determined by whether it complies with the law of the jurisdiction where it was celebrated. Throughout Ohio’s history, Ohio law has been clear: a marriage solemnized outside of Ohio is valid in Ohio if it is valid where solemnized. Thus, for example, under Ohio law, out-of-state marriages between first cousins are recognized by Ohio, even though Ohio law does not authorize marriages between first cousins. Likewise, under Ohio law, out of state marriages of minors are recognized by Ohio, even though Ohio law does not authorize marriages of minors. How then can Ohio, especially given the historical status of Ohio law, single out same sex marriages as ones it will not recognize? The short answer is that Ohio cannot…

The Court reasoned that Ohio law created two tiers of couples: (1) opposite-sex married couples legally married in other states; and (2) same-sex married couples legally married in other states, and that this “lack of equal protection of law is fatal.”

COMMENT:

Given that there are 37 states that do not recognize same-sex marriages, O’Connor and Obergefell are just the tip of the iceberg of the litigation that will follow the Winsdor decision. There are many issues that will likely arise, particularly for those same-sex couples legally married in one state but living in a state that does not recognize the marriage, including the following:

  • Is the surviving spouse allowed to take advantage of a state’s elective share or other property rights otherwise available to a surviving spouse?
  • Can the couple file a joint state income tax return?
  • Can an estate take advantage of a state-only QTIP election?

It is important that we keep an eye on these decisions and analyze how the planning of our same-sex clients is affected. In the meantime, it is recommended that current documents be reviewed to ascertain if any changes are currently required, including the review of beneficiary designation forms, REA waivers, funding clauses, post-mortem IRA elections, and required minimum distributions. In addition, prior tax filings should be examined to determine if amended returns or protective claims should be filed to reflect a different marital status. It will be very interesting to see how the different courts apply Winsdor and the effect on the myriad of planning issues for our married same-sex clients.

CITE AS: LISI Estate Planning Newsletter #2130 (August 14, 2013) at http://www.LeimbergServices.com Copyright 2013 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Written Permission.

CITES:
United States v. Windsor, 570 U.S. ___, 2013 U.S. LEXIS 4935 (2013); O’Connor v. Tobits, et al, No. 2:11-cv-00045 (Dist. Ct. E. PA, July 29, 2013); Obergefell v. Kasich, 2013 U.S. Dist. LEXIS 102077 (S.D. Ohio July 22, 2013)
Copyright © 2013 Leimberg Information Services Inc.

The newsletter above are the copyrighted materials of Leimberg Information Services, Inc. These are provided to you as a courtesy from the permission granted to The Ultimate Estate Planner, Inc. Reproduction in any form or forwarding to any person prohibited without the express permission of Leimberg Information Services, Inc.

Leave a Comment