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Federal Court Strikes Down Pennsylvania Ban on Same-Sex Marriages

Tax and Estates Alert | May 21, 2014
By: William Hussey and Kevin Koscil

Joining twelve other courts that have struck similar state laws, Judge John E. Jones II of the U.S. District Court for the Middle District of Pennsylvania ruled on May 20, 2014, in Whitewood v. Wolf, that Pennsylvania’s ban on same-sex marriages violates both the due process and equal protection clauses of the U.S. Constitution. The ruling paves the way for equal treatment of spouses in same-sex marriages for Pennsylvania income and inheritance tax purposes, and making available a plethora of other state and federal legal protections that were previously available only to heterosexual married couples.

Federal Income and Estate Tax Consequences

Several months ago, United States v. Windsor solidified certain federal rights for same-sex couples, as reported here. The IRS followed, proclaiming that it would recognize, for tax purposes, all legal same-sex marriages, regardless of a particular couple’s current residence in a state that does not recognize the marriage. Thus, prior to yesterday’s ruling, Pennsylvania same-sex couples would be entitled to federal benefits (tax and otherwise) provided they were married in a state that recognizes same-sex marriages. Following Whitewood, Pennsylvania is now one of those states.

Pennsylvania Income Tax Consequences

We anticipate that the Whitewood ruling will have no practical effect on a couple’s aggregate Pennsylvania income tax burden due to the nature of that tax. Following the ruling, however, legally married same-sex couples may file one joint return instead of two separate returns, which will decrease administrative costs associated with tax compliance.

Pennsylvania Inheritance Tax Consequences

The real effect of the Whitewood ruling is in the Pennsylvania inheritance tax arena where, under prior law, a transfer at death from a decedent to a same-sex partner (even if the two were legally married under another state’s laws) was subject to Pennsylvania inheritance tax at a rate of 15%. Following Whitewood, such transfers will be taxed at a rate of 0% (i.e. no tax), which is and was the rate applied with respect to legally married heterosexual couples. 

This represents a major shift, which implicates existing estate plans created for same-sex couples with the old inheritance tax laws in mind. Whitewood presents a new opportunity in the estate and tax planning context for couples who were disadvantaged under the prior law. 

Earlier today, the Corbett Administration announced that it would not appeal the Whitewood ruling. As the full implications of this decision become known, we will attempt to keep you apprised.

If you would like to discuss how any of these changes may affect your income or estate tax planning, or have any other tax or estate planning questions, please contact Bill Hussey (215-864-6257 or husseyw@whiteandwilliams.com), or Kevin Koscil (215-864-6827 or koscilk@whiteandwilliams.com).

IRS Circular 230 Notice: To ensure compliance with certain regulations promulgated by the U.S. Internal Revenue Service, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code, or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein, unless expressly stated otherwise.

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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