Till Death Do Us Part · 14/04/2015 · Kerrigan, the Connecticut Insurance Department issued Bulletin IC-21 stating that while the Department would not require the re- filing of

Till Death Do Us Part: Same-Sex Marriage, the Supreme Court and Implications for the Insurance Industry

Cynthia R. Shoss Vanessa A. Scott Travis J. Mock Paul A. Ferrara April 14, 2015

INSURANCE AND FINANCIAL SERVICES LITIGATION – WEBINAR SERIES

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©2015 Sutherland Asbill & Brennan LLP

Speakers

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Paul A. Ferrara U.S. Trust, Bank of America Private Wealth Management 212.852.2817 [email protected]

Cynthia R. Shoss New York, NY 212.389.5012 [email protected]

Vanessa A. Scott Washington, DC 202.383.0215 [email protected]

Travis J. Mock New York, NY 212.389.5066 [email protected]

mailto:[email protected]






Overview

• Introduction and Overview • State Insurance Laws and Conflicts • Taxation of Products • Product Opportunities • Discrimination Litigation

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MARRIAGE EQUALITY OVERVIEW

Paul A. Ferrara Wealth Strategies Advisor U.S. Trust, Bank of America Private Wealth Management

TILL DEATH DO US PART: SAME-SEX MARRIAGE, THE SUPREME COURT AND IMPLICATIONS FOR THE INSURANCE INDUSTRY SUTHERLAND ASBILL & BRENNAN LLP APRIL 14, 2015

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IMPORTANT: This presentation is designed to provide general information about ideas and strategies. It is for discussion purposes only since the availability and effectiveness of any strategy are dependent upon your individual facts and circumstances. Clients should always consult with their independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. Neither U.S. Trust nor any of its affiliates or advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

© 2015 Bank of America Corporation. All rights reserved. | 0415PFE |

Disclosure

While most same-sex couples now live in jurisdictions where they can marry, they may not have the same rights and benefits as different-sex couples

• An estimated 3.8% of adults in the United States identify as lesbian, gay, bisexual, or transgender, making for approximately 9 million Americans who identify as LGBT.1

• There are approximately 650,000 same-sex couples nationally.2 • Over 70% of the U.S. population lives in a jurisdiction where same-sex

couples can marry.3

1Gallup Special Report: New Estimates of the LGBT Population in the United States, 02/2013, and Williams Institute, How many people are lesbian, gay, bisexual, and transgender?, 04/2011. 2Williams Institute, Same Sex and Different Sex Couples in the American Community Survey: 2005-2011, 02/2013. 3“Florida Joins the Wave on Same-Sex Marriage,” New York Times, 01/06/2015.

Key facts about the LGBT community in the United States

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Same-sex marriage recognition across the United States

Top 10 cities where LGBT individuals reside (per capita basis) Source: Gallup, 2014

Same-sex marriage allowed and recognized

Alabama Alaska Arizona California Colorado Connecticut Delaware District of Columbia Florida Hawaii Idaho Illinois Indiana Iowa Kansas Maine Maryland Massachusetts Minnesota

Montana Nevada New Hampshire New Jersey New Mexico New York North Carolina Oklahoma Oregon Pennsylvania Rhode Island South Carolina Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

Same-sex marriage recognized Missouri

Source: Each jurisdiction’s website and Westlaw, as of March 5, 2015

1. San Francisco/Oakland, CA

5. Seattle, WA

6. Boston, MA

8. Los Angeles/Long Beach, CA

10. Hartford, CT

9. Denver, CO 2. Portland, OR

7. Salt Lake City, UT 3. Austin, TX

4. New Orleans, LA

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Same-sex marriage and current lawsuits challenging state marriage bans

Same-sex marriage: Settled – and up next?

The Columbia Circuit comprises District of Columbia The 1st Circuit comprises Maine, Massachusetts, New Hampshire, Puerto Rico and Rhode Island The 2nd Circuit comprises Connecticut, New York and Vermont The 3rd Circuit comprises Delaware, New Jersey, Pennsylvania and the Virgin Islands The 4th Circuit comprises Maryland, North Carolina, South Carolina, Virginia and West Virginia The 5th Circuit comprises Louisiana, Mississippi and Texas The 6th Circuit comprises Kentucky, Michigan, Ohio and Tennessee The 7th Circuit comprises Illinois, Indiana and Wisconsin The 8th Circuit comprises Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota The 9th Circuit comprises Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, the Mariana Islands, Oregon and Washington The 10th Circuit comprises Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming The 11th Circuit comprises Alabama, Florida and Georgia

Unfavorable Federal Appeals Court Ruling; SCOTUS cert. petition granted*

Favorable Federal Marriage Ruling on appeal/stayed; recognition of out-of-state same-sex marriages

Same-sex marriage

Pending same-sex marriage lawsuits

Unfavorable Federal Marriage Ruling on appeal

As of March 5, 2015

* Decision from SCOTUS expected in summer 2015

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appeal/stayed

Favorable State Marriage Ruling on appeal/stayed and Favorable Federal Marriage Ruling on appeal/stayed

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What they mean, and what they don’t mean

• Sec. 3 of DOMA is unconstitutional; the Federal Government cannot treat same-sex couples in “lawful marriages” differently from different-sex couples in lawful marriages. (Windsor)

• Same-sex couples have the right to marry in California. (Perry) • The opinions do not state that there is a fundamental right to same-sex

marriage under the U.S. Constitution. • Sec. 2 of DOMA, which allows states not to “give effect to any public act,

record, or judicial proceeding . . . respecting” same-sex marriages lawfully performed elsewhere, is still in effect.

• While Windsor does not apply to Civil Unions, Domestic Partnerships, or any other relationship that is not a “lawful marriage” as that term is defined for state purposes, it may affect certain Federal benefits for couples in such relationships.

United States v. Windsor and Hollingsworth v. Perry

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All same-sex married couples will not necessarily be able to have the same Federal rights and benefits as different-sex married couples

• Holding in Windsor is limited to “lawfully married” same-sex couples • Currently, eligibility for Federal benefits/responsibilities in some spheres

appears to depend principally on whether the marriage is lawful in the state in which the couple is domiciled (the “jurisdiction of domicile”): o Medicaid o Social Security (“jurisdiction of domicile” defined broadly)

• Currently, eligibility for Federal benefits/responsibilities in other spheres appears to depend on whether the marriage was lawfully entered into in the state or country in which the couple was married (the “jurisdiction of celebration”): o Bankruptcy o Federal Taxes o Immigration o Active-Duty Military

Although the door has opened, challenges remain

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All same-sex married couples will not necessarily be able to have the same Federal rights and benefits as different-sex married couples

• Currently, eligibility for Federal benefits/responsibilities in the following spheres appears to depend sometimes on the married couple’s jurisdiction of domicile and other times on the married couple’s jurisdiction of celebration: o Medicare o Private employment benefits (e.g., employer-sponsored health insurance,

FMLA)

• One thing is clear: same-sex married couples domiciled in one of the 38 U.S. jurisdictions recognizing same-sex marriage will be eligible for the same rights and benefits, and subject to the same responsibilities, as different-sex married couples. (According to a report issued in 2004 by the General Accounting Office, there are 1,138 benefits, rights, and protections provided on the basis of marital status under Federal law.)

Areas of uncertainty still exist

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Effect of Windsor on Federal benefits for same-sex couples in Civil Unions or Domestic Partnerships

• Certain Federal benefits now appear to be open both to married couples and to couples whose state of domicile deems them able to inherit property from each other without a Will as would a spouse: o Medicare o Social Security

Challenges for unmarried same-sex couples

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Patchwork quilt of state bans is challenging for same-sex spouses

• Because nonrecognition of same-sex marriage is still a fact in most states, same-sex married couples when traveling or moving to those states still will need to have in place documents that can confer on them, to the greatest extent possible, the same rights as those afforded to different-sex married couples: o Durable General Power of Attorney o Health Care Proxy o Health Insurance Portability and Accountability Act (HIPAA) Release o Hospital Visitation Priority Authorization o Disposition of Remains Instructions

Tension between federal recognition and state nonrecognition

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Supreme Court decision possibly could eliminate dissonance between Federal and state laws

• Appeals in Obergefell v. Hodges, Tanco v. Haslam, DeBoer v. Snyder and Bourke v. Beshear will be heard April 28, 2015

• Writs of certiorari were granted limited to the following questions: o Does the Fourteenth Amendment require a state to license a marriage between

two people of the same sex? o Does the Fourteenth Amendment require a state to recognize a marriage between

two people of the same sex when their marriage was lawfully licensed and performed out-of-state?

• Decision expected by end of June 2015

SCOTUS Litigation on the Horizon

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State Insurance Laws and Conflicts

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State Insurance Laws Historically

• Partner Benefits Some state insurance departments were early adopters of

legal interpretations permitting same-sex partner benefits. In a 1993 legal opinion, the New York State Insurance

Department interpreted the term “dependency” (to which group health coverage was limited by statute) to include “mutual interdependence” in addition to unilateral dependency.

• Discrimination States also often prohibited underwriting discrimination

based solely on indicia of same-sex partnerships. In 2004, the New Jersey Department of Banking and

Insurance prohibited insurers from charging rates for domestic partners that were excessive in relation to rates for the coverage of spouses.

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State and Federal Law Conflicts

• Marriage States Pre-Windsor After the 2008 Connecticut Supreme Court ruling in

Kerrigan, the Connecticut Insurance Department issued Bulletin IC-21 stating that while the Department would not require the re-filing of approved forms, the term “spouse” as used in existing insurance policies and contracts would be interpreted to include a same-sex spouse, pursuant to a legal marriage entered into in Connecticut or another state that recognizes same-sex marriage.

The Department recognized that, under federal tax laws, a same-sex spouse did not receive the same tax treatment as an opposite-sex spouse and therefore encouraged insurers with products impacted by federal tax rules to include a statement in policy forms that there may be federal tax implications for a same-sex spouse. 17


Inter-State Conflicts of Law

• Out-of-State Policies In 2009, the NYID was asked whether CL No. 27 (requiring

all New York licensed-insurance companies to recognize the marriages of New York same-sex couples legally performed in other jurisdictions) applied to group health insurance certificates issued in New York by unauthorized insurers under out-of-state policies for out-of-state employers.

Finding that such certificates would not be deemed issued in New York and therefore were not subject to CL No. 27, the NYID nevertheless urged the insurer, as well as the employer, to provide New York same-sex married couples with the same health care benefits offered to opposite-sex married couples in order to promote the public interest in protecting all persons, including same-sex spouses, from being discriminated against in the provision of benefits.

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Taxation and Same-Sex Marriage

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Current Status: Federal Tax Laws

• Defining Spouse Currently spouse includes those in a same-sex marriage

• Place of Celebration Rule If married in a state where same-sex marriage is legal, then

considered married for federal tax purposes

• Marriage vs. Domestic Partnerships or Civil Unions Federal law does not recognize domestic partnerships or

civil unions, although many state laws may grant spousal rights

• Retroactivity under Rev. Ruling 2013-17 The ruling made marital status retroactive for purposes of

filing, but not for challenging the rights to certain benefits, such as benefits under ERISA plans

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Current Status: Federal Tax Laws – Qualified Contracts

• Qualified Joint and Survivor Annuities (QJSAs) - Same-sex spouses considered “spouses” for purposes of determining the right to and calculating the QJSA benefit, and spousal consent rights. A same-sex spouse’s survivor annuity under a QJSA will not be taken into account when determining maximum benefits under Code § 415(b).

• Eligible rollover rules - Apply to any distribution attributable to an employee that is paid to the employee’s same-sex spouse after the employee’s death.

• Beneficiary Designations - Default spousal designations apply to same-sex spouses.

• Required Minimum Distributions - Spousal deferral rules that apply to death benefits will also apply to same-sex spouses.

• Qualified Domestic Relations Orders (QDROs) - Plans required to honor QDROs that order the distribution of benefits to former same-sex spouses.

• ERISA Preemption

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Current Status: Federal Tax Laws – Non-Qualified Contracts/IRAs

• IRA Deductions - IRA beneficiary who is a surviving same-sex spouse of a deceased IRA owner can continue the IRA as his or her own.

• Non-qualified annuities - Code section 72(s) spousal continuation rules allow same-sex spouse to continue the contract as his or her own after the death of the holder.

• Taxable transfers - Annuity transfers under Code section 72(e)(4)(C) are not taxable if the transfer is made to a same-sex spouse

• Penalty tax exceptions - Exceptions regarding penalties under Code section 72(t) (distribution under a qualified plan) will apply for certain distributions made for same-sex spouses.

• Impact of state law conflict - Same as with other contracts. State tax treatment with regard to same-sex spouses may differ in states that do not recognize same-sex spouses.

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Current Status: State Taxation

• Filing Status Conflicts Same-Sex Marriage Legal = Joint Filing Marriage Ban = ? Ohio: Same-sex married taxpayers must file as single for

state purposes, allocating income to two single returns using a state-provided schedule Louisiana: Same-sex married taxpayers must file as

single for state purposes, completing pro forma or “dummy” federal single tax returns and using that information for state returns

• Spousal Definition Conflicts States with Domestic Partnerships and Civil Unions often

have laws treating these as “spousal” unions May be able to file jointly for state but not for federal

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Life Insurance and Annuities

• Special Taxation Benefits for Spouses – How do they apply under Marriage Bans? Spousal Continuation Rule Minimum Distribution Requirements for Code § (401)(a)(9)

Plans Eligible Rollover Distribution Rules

• Policy Disclosures – Conflicts Between State and Federal Laws Spousal definition

References to State Law Definitions including Domestic Partnerships and Civil

Unions

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Product Opportunities

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Product Opportunities

• Life Insurance and Annuities As same-sex marriage is legalized, a customer group who in

general tends to be young and affluent but has historically bought mostly low-cost term insurance may open up as a new market for permanent protection or cash-value products, although targeting them as a market may run into issues with anti-discrimination bans and laws that do not allow a company to consider sexual orientation in underwriting decisions.

• Property and Casualty Insurance Currently same-sex couples in some non-marriage states

face hurdles obtaining products, particularly for homeowners insurance. Depending on upcoming Supreme Court decisions and other developments, products may need to be developed specifically for domestic partnerships or civil unions.

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Litigation Concerns: Discrimination

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What’s Next: SCOTUS

• Obergefell, et al. – 4 consolidated cases, 2 questions Does the Fourteenth Amendment require a state to license a

marriage between two people of the same sex? Does the Fourteenth Amendment require a state to

recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-state?

• Equal Protection Clause Strict Scrutiny for same-sex Marriage and Discrimination

Standards Fundamental Rights Sexual Orientation – Suspect or Quasi-Suspect Class

• Expanding Same-Sex Marriage Across States Impact on Discrimination Laws

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What’s Next: SCOTUS

• If SCOTUS rules that states must license a marriage between two people of the same sex: 14 States that currently do not permit same-sex marriage will be

required to do so. For state insurance laws, these states will (probably) need to grant

same-sex spouses married in the state the same beneficiary and spousal rights as opposite-sex spouses.

State and federal tax law will (likely) align. • If SCOTUS also rules that States must recognize same-sex

marriages in other states: Elimination of State conflicts of law for married same-sex couples Term “spouse” as used in existing insurance policies and contracts

would be interpreted to include a same-sex spouse, even if married outside of State.

Definitional conflicts for domestic partnerships, civil unions will (likely) remain.

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Discrimination Laws & Sexual Orientation

• Discrimination Based on Sexual Orientation Outright Bans – Six States Is Sexual Orientation included in General Prohibitions on

Discrimination? Most states specifically include race, gender, national origin,

and other suspect or quasi-suspect classes. If SCOTUS makes sexual orientation a suspect or quasi-

suspect class, will sexual orientation be included? • Differences within Insurance Products

Life Insurance and Annuities 10 states have outright prohibitions on using beneficiary

designations to determine sexual orientation. Privacy considerations are high, so regulation might be more

likely. Property and Liability Insurance Sexual orientation itself seems to have less risk correlation.

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Discrimination Laws and Marital Status

• Marital Status in Underwriting – Correlation to Risk or Mortality Auto and homeowners insurance

Discounts offered to married couples

Do they need to be extended to same-sex married couples?

Do the discounts extend to a couple married in one state, but living in a state with a marriage ban?

Annuities

Current data supports link between marriage and mortality.

No data for same-sex marriages.

• Marriage vs. Civil Unions or Domestic Partnerships Are they essentially equal in underwriting?

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Questions?

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Paul A. Ferrara U.S. Trust, Bank of America Private Wealth Management 212.852.2817 [email protected]

Cynthia R. Shoss New York, NY 212.389.5012 [email protected]

Vanessa A. Scott Washington, DC 202.383.0215 [email protected]

Travis J. Mock New York, NY 212.389.5066 [email protected]






Documents

Till Death Do Us Part · 14/04/2015 · Kerrigan, the Connecticut Insurance Department issued Bulletin IC-21 stating that while the Department would not require the re- filing of