Gay Marriage Cases Yield Estate Tax Planning Opportunities

Some of the court decisions on the issue of gay marriage are creating estate tax loopholes that could allow wealthy individuals to pass their estate to their heirs tax free. Every state restricts close relatives from marrying. However, the language of some states' statutes technically only prohibits opposite-sex relatives from marrying, but with a definition of "marriage" that only includes male-female unions.

Consider the statute in Massachusetts, which contains the traditional definition of marriage and provides that "No man shall marry his mother, grandmother, daughter, granddaughter, sister, stepmother, grandfather’s wife, grandson’s wife, wife’s mother, wife’s grandmother, wife’s daughter, wife’s granddaughter, brother’s daughter, sister’s daughter, father’s sister or mother’s sister." There are corresponding provisions for women.

In Goodridge v. Department of Public Health, the court acknowledged this language and said in a footnote that "the statutory provisions concerning consanguinity or polygamous marriages shall be construed in a gender neutral manner." However, the statute has not been updated despite ample opportunity for the legislature to do so. Given this, it is at least arguable that, as Phillip Greenspun pointed out, a "grandfather [could] marry his grandson, give his spouse/grandson a tax-free spousal gift of $25 million, and then get a no-fault divorce after a couple of years."

In contrast, the Connecticut legislature did amend the gender-based consanguinity provisions in its marriage statutes. Shortly after the case of Kerrigan v. Commissioner of Public Health was handed down, the legislature passed Public Act No. 09-13. This act replaced the language "No man may marry his mother, grandmother, daughter, granddaughter, sister, aunt, niece, stepmother or stepdaughter, and no woman may marry her father, grandfather, son, grandson, brother, uncle, nephew, stepfather or stepson" with the following: "No person may marry such person's parent, grandparent, child, grandchild, sibling, parent's sibling, sibling's child, stepparent or stepchild."

It is unclear what rationale Connecticut or any state would have in removing the right of same-sex relatives to marry. As has been astutely pointed out, "[T]he biological rationale for the consanguinity rules makes no sense in the context of two women or two men, as there simply can be no progeny produced between them, and hence there is no possibility of in-breeding."

The state of Iowa chose to remain silent on this question; its statute declares as void any marriage between "a man and his father's sister, mother's sister, daughter, sister, son's daughter, daughter's daughter, brother's daughter, or sister's daughter" (and vice versa) in Iowa Code Ann. § 595.19. The court in Varnum v. Brien did not mention 595.19 or consanguinity and the legislature has not updated the statute since. As such, Iowa has seen fit to allow close same-sex relatives to marry; accordingly, an unmarried woman can marry her daughter and pass wealth to her tax free.

With the 10th Circuit currently considering whether to overturn traditional marriage laws in multiple states, it will be interesting to see how or if it approaches the varied consanguinity provisions within its jurisdiction. Oklahoma is poised to become another state with an estate-tax loophole.