Search
Close this search box.

Same-Sex Couples Can Face Higher Estate Tax Liability

Print Article

OCTOBER 30, 2000 VOLUME 8, NUMBER 18

Gay and lesbian couples need to take special steps to make sure that their wishes are carried out at death. The law makes some assumptions about the intentions of married couples—that they usually intend to leave their property to one another, for example. There are also tax rules benefiting married couples that are not available to same-sex couples.

Mary Scott and Lucille Horstmeier lived together in Illinois for nearly twenty years. Ms. Horstmeier was a locally prominent businesswoman, while Ms. Scott managed the household, handled the couples’ finances and took care of housework and repairs. For some of the time they lived together, Ms. Scott worked at the school Ms. Horstmeier managed, but her earnings were considerably lower than her partner’s.

In 1975 the two women moved into a new home in Glenview, Illinois. Ms. Horstmeier made the down payment and all subsequent payments, and took the title in her name alone. While Ms. Scott contributed some of her earnings to the household over the ensuing years, she never contributed directly to the mortgage payment on the home.

Ms. Scott maintained that the two women agreed that they would own the home jointly, and that her name was left off the title only because she did not have a down payment or a steady income at the time they bought their home.

One problem that frequently arises in similar situations can occur when the couple separates, or one partner dies, and no arrangement has been formalized for division or transfer of the property. Ms. Horstmeier, however, had planned for her own death—she made a will leaving all her estate to Ms. Scott and naming Ms. Scott as her executor.

When Ms. Horstmeier died in 1993, however, there was still a problem. Because she had been successful her estate was large enough to incur an estate tax liability. If Ms. Scott could have been treated as a surviving spouse there would have been no problem, since estate tax law permits an unlimited amount of money and property to pass to a spouse without tax. But Ms. Scott’s problems with the IRS were even larger.

Since she believed that she was already a one-half owner of the couple’s home, Ms. Scott reported only half the value of the home (minus half the remaining mortgage) on Ms. Horstmeier’s estate tax return. The IRS disagreed, insisting that the entire home had belonged to Ms. Horstmeier. The distinction was important, since the IRS position produced an additional $157,404 in taxes.

The IRS position prevailed in the Tax Court, and Ms. Scott appealed. The appellate court agreed with the Tax Court, and ordered the tax paid. Scott v. Commissioner, September 8, 2000.

What could Ms. Horstmeier and Ms. Scott have done differently? They could have taken the title in their joint names and made joint payments on the mortgage, or even signed a written agreement in advance. The planning they did complete was good—without it the home might have gone to Ms. Horstmeier’s relatives instead of Ms. Scott. They should also have anticipated yet another problem facing same-sex couples in their effort to achieve the benefits routinely available to married partners.

Stay up to date

Subscribe to our Newsletter to get our takes on some of the situations families, seniors, and individuals with disabilities find themselves in. These posts help guide you in the decision making process and point out helpful tips and nuances to take advantage of. Enter your email below to have our entries sent directly to your inbox!

Robert B. Fleming

Attorney

Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman

Attorney

Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson

Attorney

Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour

Attorney

Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.