FINANCIAL PRIDE: AD D RESS I N G TH E LGBT COMMUN I TY’ S U N I Q U E PLANNING CH A L L EN GES
TA B L E O F C O N T E N T S
5 Reasons to Come Out to Your Financial Advisor.................................3
The Largest LGBT Financial Concerns....................................................... 5
7 Financial Questions Every Same-Sex Couple Should Discuss......10
7 LGBT Estate Planning Concerns You Haven’t Considered.............15
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This material is not a substitute for professional tax advice or services, nor should it be used as a basis for any decision or action that may affect your financial situation. Before making any decision or taking any action that may affect your situation, you should consult a qualified professional advisor.
INTRODUCTION
Financial planning is never a one-size-fits-all solution. Each person’s circumstances, values and goals for retirement are different, which means that each financial plan should be unique to the individual. This is especially true for members of the LGBT community. U.S. Supreme Court decisions in recent years granting marriage equality to LGBT Americans and protecting them against discrimination in the workplace are just a couple examples of how this community is directly impacted by changing laws. At the state level, laws around things like adoption rights, surrogacy or housing discrimination continue to be unique hurdles for the LGBT community to overcome with new legislation or court proceedings. In response to gains made at both the federal and state levels, efforts continue to develop to walk back some of these liberties. This creates further uncertainty for members of the LGBT community around the implications it could have on their financial future. With these changes, whether they are broadening or restricting rights afforded to individuals that identify as LGBT, come unique financial planning challenges that the broader population may not have to consider. This playbook addresses those concerns and offers suggestions to help LGBTidentified individuals work around those hurdles to create a financial plan that works for their unique circumstances. Within the pages of this playbook, the shorter acronym “LGBT” is used to refer to the broader LGBTQIA+ community. In direct references to a study that uses another identifier, that acronym is used instead to better represent that study’s findings.
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5 REASONS TO COME OUT TO YOUR FINANCIAL ADVISOR
Dustin Smith Senior Vice President Plymouth, MN
In order to receive the services you need, rather than a one-size-fits all solution, it’s important to be honest and upfront about your situation. This is especially true when it comes to financial matters. In order for financial planning to work to its maximum effect, you can’t section off your life; you have to consider your entire life. What are your goals, dreams and aspirations? How many kids do you want to have? When do you want to retire? How do you want to take care of your spouse, family and loved ones after you’re gone? All those things have to be considered if you want to build a proper plan. And some of those things can be subtly different for an LGBT person than they are for others, so you need to bring them to the table, or the plan won’t be as effective as it could be. There are a lot of concerns unique to the LGBT community that your advisor can help you with, but only if they know they should be planning for and helping you navigate those concerns. Reasons that it is important for the LGBT community to “come out” to their financial advisor include:
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Avoid Missing Out on Financial Opportunities In an industry that skews more socially conservative than society as a whole, being authentic as an LGBT-identifying person could be a personal risk and an act of bravery, and to have the courage to have that discussion can be challenging for people. That’s particularly true for older generations who came of age in less accepting times for the LGBT community. But you don’t want to miss out on financial opportunities by not being open with your advisor. The more open people are with their financial advisor, the better outcomes they can get. Some of the biggest missed opportunities for LGBT investors are discussions around wills, prenuptial agreements, cohabitation agreements and power of attorney documents. For example, even though marriage equality is now law, there are still some specific estate planning concerns for the LGBT community (which will be discussed more later). By being open and out about your sexuality with your financial advisor, you can avoid some of those planning pitfalls.
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Find a Financial Advisor that Follows the Fiduciary Standard It’s imperative that you choose an advisor that is held to the Fiduciary Standard, like the advisors at Wealth Enhancement Group. This means that they are obligated to put your financial best interests before their own and must offer unbiased advice. Want to know if they are working under the fiduciary standard? Just ask.
Generally speaking, you are building a relationship with your advisor that’s going to last for years, particularly if you are a younger person. In order for them to look out for your best interests, they need to know the whole story. If you omit this major part of your life, they won’t have all the information necessary to help you pursue your most important financial goals. Consider a patient going to see a doctor: When the doctor asks what is hurting, the patient could say, “Nothing’s wrong,” or “It hurts here, and I’m worried about this.” Which one would the doctor find more helpful in diagnosing? The better an advisor understands your needs, including knowing if you have unique planning considerations as a member of the LGBT community, the better they can advise you. Call today to schedule a free, no-obligation meeting | 1-888-831-4033
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Consider Health and Long-Term Care It’s not unusual for the LGBT community to remain “in the closet,” especially in professional settings. But hiding this detail from your advisor could result in an incomplete comprehensive plan that doesn’t account for your own planning needs and goals. For example, health concerns can vary between males and females. Same-sex couples are more likely to suffer from the same diseases, making life insurance and health care planning all the more important. Comprehensive planning can be even more important for transgender individuals, who could face staggering health care costs. Combined with health concerns, life expectancy also comes into play. In financial planning, mistakes made today might not show up for decades. Forgetting to plan for samesex long-term care accommodations, for instance, might only show up halfway through retirement. Your financial plan today may influence your lifestyle for the rest of your life, so make sure you are open with your financial advisor so they can help plan accordingly.
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State Laws May Impact Your Financial Planning When creating your financial plan, it’s important to review and understand the impact federal, state and local laws could have. For example, the landmark Supreme Court decision to legalize same-sex marriage in all 50 states resulted in financial benefits for same-sex couples from federal programs, such as those administered by Social Security, the Internal Revenue Service, and Immigration Services. As state laws work to catch-up, married LGBT couples need to pay attention to state laws that could impact their financial plans involving property ownership, parental and adoption rights, inheritance, and medical decision-making. There may be differences in state laws that could require additional legal documents and planning for same-sex couples. Your advisor can only help navigate these laws if you are open with them so they know to take these circumstances into consideration.
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Increased Sense of Security A 2015 study by the RBC Retirement Research Centre at the University of Waterloo explored whether the added challenges that LGBT adults face—feeling the need to stay in the closet, for instance— might have an impact on retirement planning. The study found that feeling supported and being out made LGBT respondents feel less uncertain about their retirement prospects and more likely to have financial planning in place for later in life, including wills and personal health directives.
The important thing is to be open and honest and be in an environment where you can speak to an advisor who’s going to be able to look at all the pieces of your life and put a plan in place that works for you.
To put it simply, what difference does sexual orientation or gender identity make when it comes to financial planning?
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No two individuals have the same financial plan. But LGBT individuals and families tend to have more unique needs when compared to the general population. And being open with a trusted advisor to understand and navigate these special needs will save you the trouble of having to course-correct later in life.
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THE LARGEST LGBT FINANCIAL CONCERNS
Brent Muller Senior Vice President Arden Hills, MN
The LGBT community has seen significant gains over the last few years, particularly with marriage equality and workplace discrimination cases decided favorably by the Supreme Court. Yet, the community has less financial security than the general population. Most LGBT-identified people say they are more inclined to save money than to spend it. But a closer look suggests the opposite may be true, according to a new Experian survey on LGBTQ financial planning. The survey—split equally between LGBTQ and heterosexual, cisgender individuals—found that 44% of LGBTQ respondents said they had difficulty maintaining adequate savings, versus 38% of the general population. These findings aren’t an anomaly; research conducted by Prudential showed similar findings, citing that the number of LGBT Americans who had started saving or investing for retirement or had an insurance or estate plan had decreased between 2012 and 2017. In addition, 41% of respondents said they are struggling to make ends meet. FIGURE 1: Top Financial Concerns of the LGBT Community vs. General Population
LGBT
GENERAL POPULATION
Loss of you/your spouse/partner’s job
42%
39%
Inflation
40%
38%
Existing debt that you or your spouse/partner will have to pay off
39%
33%
Lack of job opportunities
37%
32%
Lack of knowledge, or lack of ability (e.g. time, money) needed to gain the knowledge
37%
32%
Low interest rates impacting savings growth
33%
33%
Lack of Social Security or pension survivor benefits for same-sex couples
31%
--
Lack of employment protection for LGBT couples
31%
--
Legislation negatively affecting LGBT financial rights
30%
--
Source: Prudential Financial: The LGBT Financial Experience, 2016-2017 Call today to schedule a free, no-obligation meeting | 1-888-831-4033
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Figure 1 highlights the top financial concerns cited by respondents, including the increased concern from the LGBT community regarding the stability of their working and retirement incomes. In addition to the typical concerns with saving enough for retirement, LGBT Americans must also grapple with challenges that many of their straight or cisgender peers can avoid, including the following:
LGBT Individuals Earn Less Prudential identifies an income gap faced by LGBT individuals linked to their sexual orientation and gender identity. Generally, those who identified as male usually earn more than female-identified individuals, but gay men and lesbian women reported earning less on average than their heterosexual counterparts. And bisexual women typically earn less than their lesbian or heterosexual peers, though bisexual men earn more on average. The reason for the income inequality is complex, but an important factor to consider is the employment instability experienced by the LGBT community.
FIGURE 2: Average Income by Gender and Sexual Orientation
$90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0
Lesbian/Gay
Bisexual Female
Heterosexual Male
Source: Prudential Financial: The LGBT Financial Experience, 2016-2017
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Increased Instability for the LGBT Community Survey respondents agreed that the federal government legally recognizing their unions in 2015 has simplified their finances overall, thanks to easier ways of filing taxes, insurance coverage and estate planning. Still, LGBT individuals and couples need to prepare themselves for potential setbacks or challenges. A significant majority (62%) of LGBT respondents reported having experienced financial challenges because of their sexual orientation or gender identity, including:
13%
Discrimination or harassment at work
12%
Being passed over for a job
11% 11% 10%
Marriage inequality laws that reduced retirement security for couples Discrimination leading to higher housing costs Lower salary or reduced chance of promotion
While the U.S. has made significant progress on protecting the rights of LGBT citizens, employers in a majority of states (28) were still allowed to fire workers for the simple fact of being LGBT until a Supreme Court decision in June 2020. Prior to this landmark Supreme Court case, workplace discrimination was an issue for all LGBT individuals but was especially common for transgender people. More than one-in-four transgender people reported losing a job due to bias, according to data from the National Center for Transgender Equality. Time will tell if the antidiscrimination ruling from the Supreme Court will impact the lived experiences of LGBT people, but thus far, that lack of consistent employment or opportunities for career advancement had a major adverse impact on their financial planning and ability to save. Additionally, as shown in Figure 1 above, there is concern regarding the status of LGBT rights and the constant threat of potential legislation that could erode them, including having access to Social Security or pension survivor benefits. All of that plays into not knowing what to do for long-term financial planning.
Being LGBT Is Expensive It’s also important to acknowledge the higher costs associated with being LGBT. Transgender people, for example, often face significantly higher health care costs. And, while many same-sex couples don’t have children, those that decide to pursue parenthood generally experience higher medical and legal fees associated with the process. After paying large sums of money to conceive, LGBT couples may then have to live in more expensive neighborhoods in order to send their children to accepting schools. And, despite marriage equality, many employers still do not offer health insurance to same-sex spouses.
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All of these factors considered, LGBT couples and individuals have different needs when planning for their present and future. For example, many queer people are estranged from their families and do not have the financial support or opportunity to learn about financial responsibility from their parents—that lack of knowledge means LGBT people tend to be less confident, impacting the support needed from a financial advisor.
Lack of Confidence in Investing and Saving These surveys found LGBT investors report lower savings rates than the general population. This raises an important question: why does this community invest less for retirement?
One reason may be a lack of confidence One report found just 15% consider themselves to be knowledgeable about financial products and investments compared to 21% of other investors.
15%
LGBT investors
21%
Other investors
The numbers are worse for younger generations. Prudential reports that among LGBT millennials and Gen Xers, nearly 60% feel uncomfortable managing their investment portfolios, compared to 40% of similarlyaged straight investors.
40%
LGBT millenials and Gen Xers
60%
straight millenials and Gen Xers
While confidence may be an issue among LGBT investors, awareness of the importance of investing is not; respondents said that they should be setting aside 35% of their income in retirement, investment and cash accounts, compared to the 20% that actually do.
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Financial Planning Can Help LGBT Investors With the situations described above, it’s no wonder the LGBT community cited financial concerns above and beyond the general population. We are living in a time that will be a defining era for the LGBT community. Marriage equality and expanded workplace protections have changed lives in profoundly important ways, and you need an advisor that will help you build confidence in saving for the future retirement you hope to have. Although an advisor cannot necessarily help you earn more, as long as you’re open with your advisor, they can help develop a comprehensive financial plan that takes into account all the unique financial concerns of the LGBT community. Think of your advisor as a financial coach. They can help you plan and stay on track to work toward your financial goals— whether it’s saving for a rainy day, covering the costs of having a family, or creating an estate plan with your needs in mind—in order to help you retire with confidence.
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7 FINANCIAL QUESTIONS EVERY SAME-SEX COUPLE SHOULD DISCUSS
Tiffany Geyer Rosetti Vice President Atlanta, GA
All couples in long-term relationships must learn how to tackle financial decisions together. But same-sex couples face additional challenges thanks to confusing and ever-changing laws. The legalization of same-sex marriage by the Supreme Court on June 26, 2015 meant that no state could prevent same-sex couples from getting married and that all states had to recognize the marriages. But even though federal laws recognize same-sex marriages, the availability of some state-based benefits to same-sex spouses are not as clear. Similarly, although the Supreme Court ended workplace discrimination across the board, civil rights legislation that protects the LGBT community from discrimination in areas like housing and credit can vary on a state-bystate basis. That’s why same-sex couples must have frequent conversations about their financial concerns—the earlier in the relationship, the better. Every successful future begins with a solid foundation, and having honest conversations about money early on can help avoid uncomfortable surprises. Below, you’ll find seven essential financial questions that same-sex couples should discuss.
1. Should We Get Married? Although the majority of cohabitating, same-sex couples have married in the years since the Supreme Court decision, 42% remain unmarried. As a same-sex couple, your relationship status will affect your financial situation, including health care, employee benefits, taxes and Social Security. Learning to ask questions early on will help you and your partner make the best decisions for your shared goals. Deciding to marry isn’t purely a financial decision, but it will have a financial impact on your lives together.
Health Care and Employee Benefits As you decide how to commit to one another, explore options with your employer to see if you and your partner can enjoy benefits without legal marriage. You and your partner can ask your company’s benefits administrator what benefits they offer for domestic partnerships and civil unions and how they differ from those provided to married couples. You may find that you are already eligible for health care coverage without a legal marriage. By asking questions about coverage, you and your partner can identify the better plan and lowest premiums and determine whether you have to be married to enjoy the benefits.
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Taxes When you’re unmarried, you have more flexibility in how you file your taxes. When you legally marry, you’re restricted to filing jointly or separately—which can be a benefit or drawback, depending on your income levels. Meeting with a tax professional before you decide to tie the knot can help you understand how your relationship status will impact your tax obligations. For example, if both partners in a marriage are high earners, marriage might mean you both land in a higher tax bracket. Filing jointly also can mean that you potentially lose some deductions. However, if one partner has a higher income and the other a significantly lower income, you could find that you’re saving money by filing jointly after you marry.
Social Security With Obergefell v. Hodges, a huge roadblock to Social Security benefits was removed for same-sex couples. However, same-sex couples married in their state before the Supreme Court decision will need to alert the Social Security Administration (SSA) of their marriage to receive those benefits. The SSA recognizes a valid marriage as of the date of marriage, even if it occurred before Obergefell v. Hodges; it also recognizes some nonmarital legal relationships (such as civil unions and domestic partnerships) regarding entitlement for Social Security and Medicare benefits. Unfortunately for older same-sex couples where one spouse died before the couple got a chance to marry, the remaining partner can’t claim their spousal benefits. There’s a lasting impact for people who lost spouses and would have been beneficiaries but didn’t have the opportunity to have that because marriage equality didn’t exist. If you have more questions about how your partnership or marriage will impact your Social Security benefits, the SSA has an entire FAQ dedicated to answering questions for same-sex couples.
2. What Happens to Our Money and Assets When We Die? With the seemingly ever-changing laws and unique pressures you may face from family members, it’s important for same-sex couples to have a comprehensive estate plan, including your wishes if you become incapacitated. It’s important to remember that if you don’t have a legal relationship, there’s no automatic safety net. Although laws vary by state, your estate could likely end up with a blood relative, even if that’s not what you would have wanted. A comprehensive estate plan will help make sure your wishes are being respected after you’re gone. Couples should also ensure they have the correct beneficiaries on all their financial accounts, such as life insurance, 401(k)s and IRAs. Whenever you have a major life event, such as a marriage or new child, make sure to update your beneficiaries, as they supersede a will or trust. You might even want to consider creating a written financial inventory of all retirement accounts and life insurance policies for each partner. Then, go down the list to name or update the beneficiaries for each account. This gives both partners full visibility into the other partner’s wishes, too. Call today to schedule a free, no-obligation meeting | 1-888-831-4033
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3. What Happens If We Break Up? While it’s not commonly thought of this way, divorce provides an orderly system with protections. Since unmarried same-sex couples can’t take advantage of the divorce system, they could benefit from a cohabitation agreement. This lays out the division of domestic and financial responsibilities of your relationship while you’re together and what the plan will be if you break up. Although not every state may consider it an enforceable contract, it’s a really good guide to what your intentions were.
4. What Family Planning Challenges Will We Face? When it comes to creating families, a study showed that same-sex couples are four times more likely to adopt a child and six times more likely to become foster parents. While these options offer samesex couples more choice in their pursuit of a family, they can be quite expensive. It’s true that foster parents who adopt can receive substantial tax credits that offset a large portion of adoption costs, but adopting a newborn through a private nonprofit agency still costs an average of $40,000. An artificial insemination cycle can run less than $1,000, while a round of in vitro fertilization (IVF) can easily top $10,000. (Neither guarantees success, of course.) For couples that go the surrogacy route, fees can run more than $100,000. That is on top of childcare, education and additional living expenses to raise a child. In addition to those large expenditures, there may be challenges from states or agencies that don’t allow same-sex couples to adopt or foster children. In those cases, couples often choose to incur the cost of going to another state, setting up temporary residency and getting matched with a birth family, agency and attorney there.
Unlike other financial goals (like owning a home), there may be a biological clock involved in the process, so the conversation around family planning may need to happen sooner rather than later.
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5. How Can We Ensure Our Children Are Financially and Legally Protected? It’s important to discuss the financial and legal aspects once you have kids. For example, who will take care of the children if something happens to one or both of you? Another important consideration: If either partner is not a biological parent of a child, should he or she legally adopt the child?
“
It’s critical for couples to educate themselves on their state laws regarding parental rights. Adoption, wherever possible, is the strongest protection for a parent/child relationship if the relationship isn’t established by law or biology. However, if your state does not allow co-parent adoption, look into a co-guardianship or co-parenting agreement.
Some protections mentioned above, such as having a will and indicating beneficiaries on accounts, are especially important if you have children—particularly if you want to leave something to a non-biological child you haven’t adopted.
6. Are We Prepared to Deal with Housing and Credit Discrimination? If a potential landlord or creditor pulls your credit report and sees that you formerly went by another name that suggests you transitioned from another gender, or notes on your application that you have a same-sex spouse, that person may deny your request for an apartment or a mortgage. Remember: In a majority of states, LGBT people lack legal protections against this kind of discrimination. A recent study found that same-sex couples applying for mortgages were 73% more likely to be denied than heterosexual couples with similar financial backgrounds. What’s more, those who were approved were charged 0.2% more in interest and fees. As unfortunate as that reality is, you should be prepared to face challenges like these head-on. Do research to find an LGBT-friendly bank or loan officer before you apply for a mortgage. And if you’re turned away by one creditor, don’t assume you’ll be turned away by another.
7. What Role Does Long-Term Care Insurance Play in Our Financial Plan? Medicaid qualification rules vary by state, marital status and the type of care received. Generally, Medicaid rules require elders to “spend down” their income and assets on long-term care (LTC) services until these financial resources are largely depleted. Under these rules, if one spouse needs LTC through Medicaid, the other spouse can keep the home, substantial assets and a living-wage income to help protect the “healthy spouse” from living in poverty.
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Unfortunately, these spousal impoverishment protections do not apply to other types of family structures, including same-sex couples, families of choice (such as two friends who own a home together), or elder heterosexual couples who live together but are not married. This is why LTC insurance should be evaluated when LGBT couples prepare for the future. It covers care generally not included with health insurance, Medicare or Medicaid.
Build a Financial Team That Suits You As with a great relationship, these financial topics are far from “set it and forget it.” Your finances need tending and updating as time goes on and your life circumstances and goals change. It can be overwhelming to consider all these questions, but you don’t have to do it alone. Same-sex couples should discuss these and other unique challenges with their financial advisors so they can help draft financial plans that work toward your long-term financial goals for retirement and beyond.
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7 LGBT ESTATE PLANNING CONCERNS YOU HAVEN’T CONSIDERED
Kate Maier Advanced Planning Sr. Financial Planner Plymouth, MN
The idea of planning for after you’re gone is daunting, but proper estate planning is vital for anyone who wishes to protect their assets and loved ones. It could be even more critical for same-sex couples and LGBT families, even after the 2015 Obergefell v. Hodges Supreme Court decision. The legal recognition of same-sex marriages opened up a multitude of previously unattainable tools and taxsavings that come along with a legal and recognized marriage. Yet, same-sex couples still may have situations that require extra or special planning, such as adoption by non-biological parents or navigating complicated dynamics with family members who may not accept them.
A Pew Research Survey shows that four in ten LGBT adults have been rejected by a close family member or friend due to their sexual orientation, which can have ramifications on their estate planning.
Same-sex couples’ estate plans could be more vulnerable to sabotage by unsupportive family members, such as: • Having their wills contested by a family member that may not recognize the validity of their relationship • Custody battles over non-biological children in the event of the biological parent’s death or incapacity • Family attempts to interfere with a spouse’s ability to make medical and financial decisions for their partner
While there isn’t necessarily a need to draft estate planning documents differently from heterosexual spouses, same-sex couples should make a pointed effort to review their existing estate planning documents, especially those drafted before 2015. You want to be sure they include language (e.g. wife/husband/spouse) consistent with current laws to help protect loved ones and to help ensure your wishes are carried out after you’re gone. Keep in mind the following estate planning considerations for same-sex couples:
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Make Sure Your Assets Transition According to Your Wishes One study found that the LGBT community is less likely than their heterosexual counterparts to have a will. For instance, while 56% of LGBT investors with a net worth between $100,000 and $1 million have a will in place, 70% of non-LGBT investors in the same bracket already have a will. The difference is greater for investors with a net worth over $5 million, where 72% of LGBT investors have a will and 91% of non-LGBT investors do. LGBTQ Non-LGBTQ
72% with a will
56% with a will 70% with a will Net Worth Between $100,000 and $1 Million
91% with a will Net Worth Over $5 Million
What does that mean for same-sex couples? Wills are particularly important for those members of the LGBT community who are not married but who are in serious relationships (which is the majority— as of 2017, only about 10% of LGBT Americans were married). If you are in a domestic partnership or other serious romantic relationship and you die without a will (the legal term for this is intestate) then the intestacy laws of the state you live in will determine who gets your assets. These rules vary greatly by state, which means your assets could be divided among a number of “heirs,” including surviving spouses, parents, children, siblings and even aunts and uncles. Domestic partners are rarely included in the state statutes and will likely be disinherited, regardless of your intentions. Therefore, if you want to determine what happens to your property and assets when you pass, a will is your best option. Keep in mind the importance of keeping your will and beneficiary designations up to date. For many people, their retirement accounts and life insurance are their largest assets, and their beneficiary designations supersede whatever is written in their wills. If you previously named an ex-partner or spouse as beneficiary on an IRA and forgot to change it, that person will collect that asset regardless of who you leave the asset to in your will. You may be asking, “But won’t my family just contest the will anyway?” If you believe that is the case and you don’t want to risk jeopardizing your spouse’s inheritance—not to mention saving your spouse/partner the pain and stress of a contested probate case—you may consider creating a trust. Establishing a trust can offer superior asset protection to wills and could be worth discussing with your financial advisor. However, despite any benefits of establishing a trust, it can be expensive. If that is not a viable option, then consider adding a “no contest” clause or particular language into your will that discusses why you are leaving your estate to your spouse instead of other family members. Spelling out the reasoning behind your wishes (e.g. Jane Doe loves her family but chooses to leave her estate to _____ because _____), gives someone less room to contest it later during probate. You should also keep a paper trail of your old estate planning documents. If your will is ever contested, it’s more difficult to prove fraud or undue influence if several documents demonstrate a consistency of your wishes regarding your spouse and their inheritance.
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Go Beyond a Will for End-of-Life Care A will is what many people think of when it comes to estate planning, but same-sex couples shouldn’t stop there. Same-sex spouses tend to be challenged more often than heterosexual spouses when they need to make medical and financial decisions for partners who are incapacitated or unable to communicate. This is why it’s especially important for same-sex couples to document their wishes. Make sure you work with a professional to ensure you have all the documents you need to carry out your final wishes, including: •
Durable financial power of attorney—designates a person to handle your financial affairs if you become too ill or incapacitated. There are different kinds of powers of attorney, and the rules and requirements vary by state.
•
Health care power of attorney (also called a health care proxy)—designates a person to make medical decisions on your behalf if you are too ill or incapacitated. This is particularly important for same-sex couples who are unmarried or in domestic partnerships to ensure that the individual you want to make your decisions is able to do so.
•
HIPAA privacy authorization form—an often-overlooked but critical form that allows doctors and other health care professionals to disclose pertinent health information and records to your designated health care power of attorney or trustee. A trustee, for example, may need your medical records to establish your medical condition or mental capacity for the purposes of managing your estate.
•
Health care directive—designates the type of health care you would like to receive at the end of your life in the event you are incapacitated or unable to speak for yourself.
Take Advantage of the Unlimited Marital Exemption Before the Supreme Court ruling legalizing same-sex marriage, if one member of a couple planned on leaving a bequest to a partner, many couples would purchase a life insurance policy to help cover estate taxes. Now, same-sex couples can enjoy the unlimited marital deduction for federal estate and gift taxes, which is something many heterosexual married couples have enjoyed to great financial success for decades. Therefore, gay and lesbian spouses can now generally leave an unlimited amount of assets to their surviving spouse without triggering a federal estate tax, as long as both are U.S. citizens. A same-sex spouse can also now roll over assets from a deceased spouse’s retirement accounts to their account without a mandatory minimum distribution or lump-sum distribution. That previously wasn’t an option for same-sex couples. By taking advantage of the marital deduction and rolling over assets, same-sex couples can revisit their financial and estate plan to free up considerable liquidity. This exemplifies how estate planning isn’t a “set it and forget” type of action; it’s ongoing, and you might have to roll back plans you put in place pre-Obergefell.
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Close the Loop for Your Children
Same-sex parents have a unique set of estate planning concerns when it comes to children, especially when only one partner is the biological parent. A child, either born or adopted into a same-sex union, needs to be specifically identified throughout the estate planning documents. FOR EXAMPLE: you can designate guardianship for minor children in your will. Without a will, no guardianship is established, and the courts must choose guardians by making the “best guess” as to who the biological parent would have preferred and what would be in the best interest of the child. The court may or may not choose your partner or spouse. In order to prevent opening the door to custody battles, the non-biological parent should strongly consider adopting that child (often referred to as a second-parent adoption, co-parent adoption, or stepparent adoption, depending on your state). This is particularly true if the child was born before the couple got married, since not every state has marital presumption laws. Adoption establishes a legal relationship to avoid having to battle for custody if anything happens to the biological parent. Adoption also plays an important role in the passage of assets. Typically, when parents die, their assets are passed on to their children. If this is an estate planning goal for a same-sex couple, adoption should be considered, since it’s more common in same-sex marriages for only one parent to be biologically related to the child.
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Consider Real Estate Ownership Same-sex couples should also review real estate documents, especially for property purchased before marriage equality, to make sure that the ownership is listed according to the couple’s wishes:
Tenants in Common gives both individuals a share in ownership of the property (house) but allows each individual to will their shares to someone else in the event of their death.
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Joint Tenants with Rights of Survivorship signifies that both individuals are owners; if one individual passes away, the other will automatically gain sole ownership.
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The state you live in may also dictate how you want to title your assets. FOR EXAMPLE In community property states, the couple may want to convert separately owned property to community property in order to receive a step-up in basis upon the death of the surviving spouse. However, this also means that your spouse has control over 50% of the property, and you will be unable to leave 100% of the property to a different person, such as a child. Other states allow a Tenancy by the Entirety ownership, which is similar to Joint Tenants above. Tenancy by the Entirety is only available to married couples and provides additional protection against one spouse’s creditors. Before making any binding decisions, you should get sound legal advice to take into account your unique situation.
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Tie-Up Loose Ends from Before Marriage Equality Estate planning challenges remain for many LGBT individuals who entered into legal unions before marriage was even an option. The patchwork of prior state laws has had some unintended consequences for estate planning. For example, before the 2015 Supreme Court decision, some same-sex couples tied the knot in states that recognized their marriages, then moved to states that didn’t recognize those marriages. Thinking their nuptials “didn’t count anyway” in the non-legal states, couples may have split up but never legally dissolved their marriages. On top of that, some states have automatically converted registered domestic partnerships or civil unions into legal marriages. That means people are now married and may not even know it, which opens the door to future claims against their estate. In order to protect their estate and their interests, LGBT individuals must resolve the tangled web of domestic partnerships, civil unions, and other legal arrangements they may have created with prior partners from before marriage was made legal.
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Work with Professionals for Comprehensive Financial Planning Proper estate planning is vital to ensuring that your wishes are carried out during your lifetime and that your assets pass along to your loved ones in the manner you desire after your death. These are issues that can potentially be more complex for the LGBT community.
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CALL US TODAY 1-888-831-4033 Schedule a free, no-obligation meeting to learn more about the unique financial challenges facing the LGBT community and how to plan for them. (For best service, please call between 8:00 a.m. and 5:00 p.m. Central Time)
Advisory services offered through Wealth Enhancement Advisory Services, LLC (WEAS), a registered investment advisor. Certain, but not all, investment advisor representatives (IARs) of WEAS are also registered representatives of and offer securities through LPL Financial, member FINRA/SIPC. Wealth Enhancement Group and WEAS are separate entities from LPL.Wealth Enhancement Group is a registered trademark of Wealth Enhancement Group, LLC. 1-05123300 03/2021
