The IRS has released guidance for same-sex spouses to recalculate their
lifetime deductions for estate, gift and generation skipping tax under
United States v.
A single person has a lifetime exclusion of $5,450,000 for estate, gift
and generation skipping tax. Transfers between spouses are not considered
taxable under the marital deduction. Therefore living spouses can make
transfers or gifts to one another in any amount tax free. Further, married
couples can combine their lifetime exclusion which is known as portability.
Meaning, at the first spouse to die, transfers to the second spouse will
not be taxed and the second spouse will enjoy any unused portion of the
lifetime deduction of the first spouse. Put plainly, the couple has a
maximum potential exclusion of $10,900,000 at the death of the second spouse.
In 2013, the Supreme Court handed down a landmark decision in
Windsor whereby the Defense of Marriage Act (DOMA) was deemed unconstitutional,
thereby legalizing same-sex marriage, in this case, for federal tax purposes. Prior to
Windsor, same-sex couples were not able to take advantage of the marital deduction
and transfers between living same-sex spouses were subject to federal
gift tax. Unused portions of the lifetime $5,450,000.00 exclusion could
not be added to the second spouse at the death of the first spouse, and
‘generations’ for generation-skipping tax purposes were calculated
solely on age and not on actual lineal generations. After
Windsor, same-sex couples legally married in any state were eligible for the martial
deduction, taking advantage of each other’s unused lifetime exclusion,
and the same calculations for generation skipping tax. Further, that the
law would apply prospectively and same-sex spouses could file for amended
or adjusted returns, including refunds for overpayment of tax based on
the new calculations.
The previous time limitations to do so have recently been lifted and the
IRS has issued guidance to same-sex spouses to file for a recalculation
of their lifetime exclusion based on the marital deduction and portability.
Any 706 estate tax return or 709 gift tax return must be filed with a
statement at the top of the return stating that the return is “FILED
PURSUANT TO NOTICE 2017-15” and include a statement supporting the
claim for marital deduction, adjustment to any generation skipping tax,
and supporting the recalculation of the lifetime exclusion remaining to
both spouses for gifting purposes, or a surviving spouse for portability.
Instructions and a worksheet will be available on the IRS website.
Madison Porzio Schneider, Esq., LL.M., an associate in Vishnick McGovern
Milizio LLP’s Trusts and Estates Practice Group, concentrates in
the areas of Trust and Estate Administration, Litigation and Planning.
She earned a Masters of Law (LL.M.) degree in Taxation with a concentration
in Estate Planning and a Juris Doctor degree, both from New York Law School.