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Florida Tax Review

Abstract

Although the construction of husband and wife as a single economic unit seems ingrained in estate and gift tax jurisprudence, married couples have not always enjoyed special tax status. Part I of this article traces the historic development of the “one flesh, one taxpayer” approach to wealth transfer taxation. In 1948 Congress used federal tax law to cure the economic impact of differences in married couples’ property rights under state law. Over a period of more than thirty years, the marital deduction then evolved from a tool for achieving jurisdictional uniformity into an institution based on an unreal and idealized story of proper gender roles for men and women and the economic significance of marriage.

Part II of this article details the benefits of marriage under present wealth transfer tax laws. Apart from the estate and gift tax marital deduction, a married couple may “split” lifetime gifts to achieve a low (or no) tax bill. Unique among beneficiaries, a surviving spouse can disclaim property to a trust for his or her own benefit without adverse tax consequences.

Part III analyzes the jurisprudential implications of the “one flesh, one taxpayer” approach to wealth transfer taxation. Notwithstanding the law’s gender neutrality, the current estate and gift tax approach to marriage is a vestige of the common law rule of coverture that suspended a woman’s legal identity during marriage.18 Furthermore, in departure from important tax policy goals, federal wealth transfer tax laws privilege heterosexual marital relationships over other socially important relationships with economic or emotional characteristics similar to marriage. By failing to recognize the economic unity of taxpayers who may be opposite-sex unmarried domestic partners, same-sex domestic partners or adult children who support elderly parents, the one flesh, one taxpayer rule discourages relationships that benefit society as a whole.

Part IV proposes the elimination of the marital deduction in favor of a “one flesh, two taxpayer” approach to marriage that would cause all gratuitous transfers to be subject to taxation, regardless of the identity of the recipient. At the same time, the wealth transfer taxation system should accommodate a dramatically increased applicable exclusion amount. That way, even though all transfers will be subject to taxation, the vast majority of transfers will not result in actual payment of tax. This Part illustrates how increasing the exemption amount will increase federal tax revenue and enhance the vitality of common law and community property systems. The article concludes by connecting the estate and gift tax treatment of marriage to the larger issue of estate tax repeal and reform.

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