On June 26, 2015, the United States Supreme Court ruled in favor of marriage equality, finding that the Fourteenth Amendment of the Constitution requires all states to issue marriage licenses to same-sex couples and recognize same-sex marriages entered into in other states. Following is a brief background on the history of this issue in Nebraska. In a series of articles, Adams & Sullivan attorneys will address specific issues impacted by the ruling. The first, which is below, pertains to changes in estate planning and death-benefit management by Timothy J. Buckley.
In 2000, a Nebraska state constitutional ban on marriage equality and civil unions was established, per Initiative Measure 416. In 2005, in Citizens for Equal Protection v. Bruning, U.S. District Court Judge Joseph Bataillon declared the ban on same-sex marriage unconstitutional. In 2006, the 8th Circuit Court of Appeals overturned Judge Bataillon’s ruling, letting the Nebraska constitutional ban on same-sex marriage stand. Opponents of the constitutional amendment did not seek review of the decision by the Supreme Court of the United States.
In June 2013, in Windsor v. United States, the U.S. Supreme Court issued a historical ruling, holding that the Defense of Marriage Act (DOMA) is unconstitutional. DOMA defined marriage as a legal union between one man and one woman. DOMA codified the non-recognition of same-sex marriage for all federal purposes, including the filing of joint tax returns, Social Security survivors’ benefits, and insurance benefits for government employees. It also provided that no state is required to recognize a same-sex marriage entered into in another state.
In the wake of the pivotal Windsor decision, on November 17, 2014, in Waters v. Heineman (later, Waters v. Ricketts), seven same-sex couples seeking to marry in the state of Nebraska or to have their legal marriages recognized by Nebraska filed a lawsuit challenging Nebraska’s law denying the freedom to marry to same-sex couples. On March 2, 2015, in Waters v. Ricketts, Senior U.S. District Court Judge Joseph Bataillon (again) ruled that the Nebraska state ban on marriage equality was unconstitutional.
On March 5, 2015, Judge Bataillon’s ruling was stayed pending appeal, thus blocking same-sex marriage from starting in Nebraska. On April 29, 2015, the 8th Circuit, of its own accord, put oral arguments and further proceedings on hold pending a ruling on same-sex marriage by U.S. Supreme Court. On June 26, 2015, the U.S. Supreme Court issued its decision in Obergefell v. Hodges, making same-sex marriage the law of the land.
The Supreme Court’s decision authorizes any two unmarried adults, regardless of gender, to enter into a legal marriage and requires that all states recognize the legal marriages of same-sex couples entered into in another state. The foremost impact of the ruling is to provide eligible couples the opportunity to obtain the rights, benefits, protections, duties, obligations and responsibilities granted or imposed under the law to all married persons. Additionally, the ruling protects individuals against discrimination based on spousal status in employment, housing and places of public accommodation.
Changes to Estate Planning for Same Sex Marriage Couples
The recent U.S. Supreme Court ruling granting same-sex couples the right to marry in all states will likely impact estate planning and state death taxes, as same-sex married couples will now be entitled to the same benefits and tax treatment that opposite-sex married couples have traditionally enjoyed.
The Federal Estate Tax (FET) affects only larger estates of decedents. The FET is currently applicable to estates having a gross value over $5,430,000. But in all cases, a decedent’s surviving spouse is exempt from the FET. With the Obergefell ruling, this marital exemption will now apply to same-sex married couples as well. Prior to Obergefell, same-sex couples who had been legally married were denied the FET marital exemption, as the federal government (pursuant to the Defense of Marriage Act (DOMA)), did not recognize same-sex marriages. Now, assets passing to a surviving spouse of a same-sex couple will pass tax free. Before Obergefell, any assets passing to a same-sex surviving spouse in excess of the $5,430,000 exemption in 2015 would have been taxed at 40% of the fair market value of those assets.
The Obergefell ruling will presumably have the same effect on the Nebraska Inheritance Tax. Like the FET, surviving spouses are exempt from inheritance tax in Nebraska. Before Obergefell, Nebraska did not recognize same-sex marriages performed in another state where such marriage was legal. In such cases, the surviving same-sex spouse was treated as a non-relative of the decedent for inheritance tax purposes. This resulted in the surviving same-sex spouse being taxed at the highest level of 18% of the value of the assets received from the decedent’s estate above the $10,000 exemption. Same-sex married couples in Nebraska now should be able to enjoy passing assets to the surviving spouse at the first spouse’s death without having any inheritance tax imposed.
Same-sex married couples in all states can now do their estate planning free from any worry or confusion about whether the marital deduction will or won’t apply to them at the first spouse’s death. Under Obergefell, same-sex married couples will be entitled to all of the benefits that opposite-sex married couples have enjoyed with respect to estate and inheritance taxes.