Fiore Interviewed on Estate and Gift Tax Considerations Post Windsor
Carl C. Fiore, Managing Director in the New York office of WTAS, was recently interviewed by The Editor of The Metropolitan Corporate Council, Inc.
Editor: Please tell us about your background.
Fiore: I am an attorney by training, having received my LLM in estate planning from the University of Miami. I focus in the trust and estate area, and my involvement in planning for same-sex couples began with wealth transfers between same-sex couples and their families.
Editor: What choices did same-sex couples living in states that recognize same-sex marriage (“recognition states”) have before Windsor regarding their federal and state tax filing status?
Fiore: They really didn’t have a choice. Same-sex couples living in recognition states found themselves in an interesting situation: for both income and transfer tax, they were forced to file as married couples for state purposes but as single individuals for federal purposes.
Editor: Outline for us if you would the tax benefits for federal recognition of same-sex marriage for parties living in recognition states. In addition to lower marginal rates in most cases, what are some other benefits?
Fiore: There are tremendous benefits. For tax purposes, it was decided a long time ago that married couples would be treated as one economic unit, and as a result the tax law evolved such that economic interactions between spouses were supposed to move seamlessly. DOMA effectively prevented this for same-sex couples.
The most obvious benefit is the ability to file joint returns – keeping in mind that, because of the so-called marriage penalty, in some situations filing a joint return could actually be a detriment. Many of the rate schedules and benefit phaseouts are more advantageous for married couples. For example, if one spouse is earning all the income, because of the graduated rates and phase-outs at higher income levels for married couples, that couple will end up paying less tax as a married couple than they would as individuals. On the other hand, if both spouses are earning around the same, even though the same rates and phaseouts apply as they did in the first example, they could end up paying more tax as a unit because those beneficial rates and phase-outs do not fully track two separate incomes.
That said, most married couples will likely still find themselves in a better situation filing joint returns, especially when taking into account other tax considerations such as capital gains. If one spouse has capital loss and the other has a capital gain, they can offset each other. Likewise for passive activity loss: if one spouse has ordinary loss from investments that he or she can’t take against their other income because of certain limitations and the other spouse is generating passive ordinary income, these, too, can be netted on a joint return.