Serving Gay Clients

Imagine this scenario. A same-sex couple has lived together for years, maybe decades, when one partner dies. The family that disinherited the deceased person years ago now descends on the household, making off with everything not held in the name of the surviving partner, who may now face financial hardship. Harold Lustig of Lustig Financial Services in San Francisco heard a similar story while attending

Imagine this scenario. A same-sex couple has lived together for years, maybe decades, when one partner dies. The family that disinherited the deceased person years ago now descends on the household, making off with everything not held in the name of the surviving partner, who may now face financial hardship.

Harold Lustig of Lustig Financial Services in San Francisco heard a similar story while attending the Metropolitan Community Church, which has many gay members. Although he is not gay, Lustig decided he wanted to help prevent such injustices. Lustig now works with a number of gay clients in a fee- and commission-based practice.

In contrast, Todd Rainey, CLU, ChFC, runs a fee-based financial planning business in Sherman Oaks, Calif., where he serves fellow members of the local gay community. To promote his business, Rainey sponsors gay-lifestyle-oriented events, including golf tournaments, and wine tasting and cooking classes. He also has a 10-member client advisory council.

Whether you are gay or not, serving gay clients is a viable market. Same-sex couples number almost 500,000 nationwide, according to the 2000 United States Census. At a national conference for financial advisers serving the gay and lesbian community, the 150 advisers in attendance managed an average of $25 million to $35 million in assets.

If you're still trying to decide if this market is for you, consider that you may already have clients in gay or nontraditional relationships. “Be careful of your assumptions,” says Sandra Reynolds, CFP, a fee- and commission-based planner in Westport, Mass. “Don't just assume that someone is single or is married to a person of the opposite sex.”

How can you find out? Reynolds suggests asking, “Is there anyone else we need to plan for?” Replacing the word “spouse” with “significant other” on forms is also a good idea.

And the truth of the matter is, many of the issues faced by gay couples are the same as those confronted by committed yet unmarried straight partners. So either way, you should be familiar with these unique issues.

Untangling Estate Planning

Estate planning is a major concern, according to John LeBlanc, CFP, a fee-only financial planner at Backbay Financial in Boston. “We've all heard the horror stories.”

The horror stories happen because the system is not set up to accommodate nontraditional couples. When a spouse dies, most assets automatically pass to the surviving spouse tax-free and without a will. An unmarried surviving partner lacks these protections, so unmarried couples can end up paying estate taxes twice.

According to most state laws governing decedents without wills, when an unmarried person dies, the assets go to the nearest surviving relative. One way around this is to have Transfer on Death documents on file with mutual fund and brokerage accounts, and Payable on Death forms for bank accounts, according to Gail Horowitz, an attorney with Wade & Horowitz, Brookline, Mass.

To be sure that assets pass as desired, most unmarried couples need wills and some will need trusts, Horowitz says. Trusts can help ensure that assets go to the desired relatives, friends or charities after the partner dies, as well as providing for a partner. If everything were left to a partner, after that person's death, the assets would go to the partner's relatives or charities. A trust may also be effective in avoiding probate, which is costly in some states and is public.

Issues of title are also tricky when it comes to unmarried partners. Some couples hold property jointly, but upon the death of one partner, the IRS presumes the property was owned entirely by the deceased, and it becomes subject to estate tax in that partner's estate.

With unmarried couples, a deceased's family may also challenge jointly held property.

Holding property as tenants in common can backfire, too. When one partner dies, that person's share of the property becomes part of the estate and is disbursed according to the will or state laws. If there is no will, the survivor may now own a house with the deceased partner's mother.

Addressing Insurance Concerns

Generally speaking, life insurance is not a hard sell for the gay and lesbian audience, Lustig says. “You don't have to sell mortality here the way you have to sell it in the straight community,” he says. “Everybody knows someone who has died of AIDS, and by the time they get to me, they're ready to address this.”

Indeed, life insurance is one way of providing for a surviving partner or making sure there are funds to pay estate taxes. But who owns and pays for the insurance is important. When the surviving partner is the owner, it does not become part of the estate of the deceased.

Same-sex partners are penalized in a few states for allegedly not having “insurable interest” in a partner's life. Some planners get around this by having the client name a family member, and then changing the beneficiary once the policy has been issued, Lustig says. Another way around this is to make a living trust the owner and beneficiary on the policy, then name the partner as beneficiary to the trust.

Basic health insurance, too, can be a problem since most companies don't provide domestic partners benefits. Even if such benefits are available, the employee pays taxes on them. Many couples want long-term care insurance, but aren't eligible for the savings offered married couples on dual policies. Health and long-term care insurances are virtually impossible to obtain by people who are HIV positive, even though many now live longer with HIV.

An HIV test is routinely required when applying for life policies. Planners recommend that clients take a test anonymously before applying since being denied insurance goes on one's record.

Making Investment, Retirement Decisions

Some financial advisers have found that gay and lesbian clients want investments sensitive to their needs. Many of these products typically fall under the heading of “socially responsible” investments. For example, Friends Ivory & Sime advertises its “socially aware” funds on The Gay Financial Network at www.gfn.com.

Shelly Meyers of Meyers Capital Management, Beverly Hills, Calif., founded and continues to manage another such fund — the Meyers Pride Value Fund. Since the fund's beginning in 1996, she has screened companies from all industry sectors for having voluntarily instituted anti-discrimination policies. “After companies pass socially directed screens, I take a strictly value approach,” she says. The fund was just taken over by Citizens Fund Group of Portsmouth, N.H.

Beyond selecting particular investments, retirement planning in general for nontraditional couples is difficult. Few software programs exist to model retirement plans for unmarried couples. So planners typically run everything twice for gay partners and unmarried couples. And frequently, these couples must accumulate more assets than spouses to live a comfortable retirement.

Social Security and many corporate pension plans have survivor benefits for spouses, but none for unmarried couples. An IRA allows a person to name anyone as a beneficiary, but here, too, a spouse has the advantage of postponing distributions until age 70½. A nonspouse beneficiary doesn't have the option of doing a spousal IRA.

Overcoming Resistance

Sitting down with a financial adviser forces a couple to look at aspects of their relationship: how committed they are, what happens if they break up as well as what happens when one partner dies.

Rainey finds some clients are uncomfortable with the process. “We're not thought of as having traditional relationships so we don't want to make them traditional with trusts and all that,” he says.

At the same time, financial advisers find that gays and lesbians are discerning customers. Debra Neiman, CFP, of Neiman-Maloy Financial Group in Wakefield, Mass., says the community doesn't like being “marketed to.” It's not enough to take a traditional financial planning brochure and slap a picture of two men or two women on the cover.

“If you're going to cater to this group, you have to do more than pay it lip service,” Neiman says. “They can tell if someone is addressing their unique concerns.”

Registered Representative welcomes your comments on this story. Contact Group Editorial Director Geoff Lewis at [email protected] or call 212/462-3580.

Clients Need Good Legal Counsel

Gay and lesbian couples face many legal hurdles. So financial professionals must be ready with referrals to attorneys well-versed in working with unmarried couples.

According to Gail Horowitz, an attorney with Wade & Horowitz, Brookline, Mass., unmarried couples need at least three documents: a will, durable power of attorney and health care proxy.

Durable power of attorney allows one partner to make financial decisions for the other, including things such as paying bills or handling investments. A health care proxy, sometimes called durable power of attorney for medical care, designates another person to make medical decisions. In some states, a living will may also be needed to cover life-support issues.

Partners may each want their own attorneys, or they may use the same one, Horowitz says. However, they should draw up their wills on different days. This is so family members cannot contest a will on the grounds that the deceased was “coerced” into leaving assets to a partner.
— R.H.

Same-Sex Stats

The 2000 United States Census found these cities had the greatest percentage of households with same-sex couples:

San Francisco, 7%

Santa Fe, N.M., 1.95%

Portland, Maine, 1.6%

Other cities ranking high on the list were Bloomington, Ind., Iowa City, Iowa, and Asheville, N.C.

Written Resources

Check out these books geared to this market:

  • “4 Steps to Financial Security for Lesbian and Gay Couples,” by Harold L. Lustig, ($14.95, Fawcett Books, ISBN 0449002497).

  • “Money Talk, A Gay and Lesbian's Guide to Financial Success,” by Todd J. Rainey, ($17.95, Gabriel Publishing, ISBN 1891689754).

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