IRS Issues Guidance for Estates of Same-Sex Couples Pre-Windsor

With tax season well underway, the IRS recently released guidance on recent developments pertaining to the estate tax and generation-skipping transfer (GST) tax.

In January, the IRS released Notice 2017-15 to provide taxpayers with information regarding the new administrative procedures based on recent changes in the legal definition of marriage. Through the Supreme Court decisions in U.S. v. Windsor (2013) and Obergefell v. Hodges (2015), the IRS has recognized that certain taxpayers and executors of certain taxpayer’s estates may recalculate remaining applicable exclusion amounts under the unified credit against estate and GST tax exemptions.

Prior to Windsor, married same-sex couples could not claim a marital deduction for transfers made between them. Post-Windsor, these married couples now qualify for the marital deduction and may thus preserve the remaining exclusion amount for other gifts or bequests.

The Windsor ruling affects the tax treatment on children of same-sex couples. Previously, due to a lack of a legally recognizable familial relationship toward one parent, a child may have, based on their age, been classified and declared to be a “skip person” subject to GST tax. The IRS’s recent notice explains that same-sex couples can now include both spouses’ descendants by marriage and a child of that couple would no longer be subject to GST tax.

For those estates affected by the Windsor ruling, the IRS’s notice sets forth certain actions to take such as conducting recalculations of these exclusions and exemptions and reflecting those changes on specific forms, etc.

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