Landmark cases over the last several years (for example, Obergefell v. Hodges, Pavan v. Smith) have brought members of the LGBTQ+ community greater parity with their cisgender, heterosexual peers. While Obergefell gave same-sex couples the right to marry, there are still many gaps in the rights and protections afforded to those in the LGBTQ+ community. For example, only recently have same-sex couples been able to put both partners’ names on a child’s birth certificate and until 2020, state courts took varying stances on whether firing someone based solely on sexual identity or orientation was legal.
While laws and court decisions mean more similarities in planning, both personal and financial, for LGBTQ+ families—including access to hospitals and the ability to make health care decisions, the marital deduction for gifts between spouses and the right to inherit under intestacy laws—there are still several differences that financial and estate planning professionals should take into account when assisting those in the LGBTQ+ community.
While same-sex marriage became legal in all states in 2015, according to the United States Census Bureau, same-sex couples are still less likely to marry than opposite-sex couples. As a result, the protections afforded to married couples, related to everything from taxes to access to health care information, will not be available to these unmarried couples. Consequently, while standard documents such as financial and health care powers of attorney are important for all clients, they take on even more significance for non-married LGBTQ+ couples.
When you consider that there may also be more complicated family dynamics with same-sex couples (for example, family members who don’t approve of a same-sex partner), documents giving the same-sex partner the same rights a spouse would be entitled to become imperative. Financial advisors and estate planners can assist clients by providing the proper guidance on how to navigate these complex documents and ensuring that their rights remain intact should they decide to remain unmarried. This would mean providing advice such as ensuring their clients have updated Health Care Directives, Powers of Attorney and wills or trusts. Trusts may be preferable where clients have privacy concerns, so as to keep their planning decisions off of a court’s public record.
Likewise, from a tax planning perspective, the unlimited marital deduction will not be available to same-sex couples who don’t marry. Instead, lifetime planning using the estate tax exemption and/or methods that “freeze” estate values and shift appreciation to the next generation become necessary if estate taxes are a concern.
Perhaps the most significant difference when it comes to estate and financial planning for LGBTQ+ couples is providing guidance when children are involved. Children of same-sex couples often are only biologically related to one of the parents, and therefore, custody issues in the event of the death or incapacity of the biological parent must be addressed, even more so if the non-biological parent hasn’t adopted or otherwise been judicially decreed as a parent.
Having both parental names on the birth certificate may not extinguish the legal rights of the other biological parent, making legal adoption or a decree of parentage crucial to protect the rights of the non-biological parent. Failing to legally address parentage during life may result in prolonged custody disputes and/or the unintentional splitting up of family members.
Likewise, the definition of a child in many traditional estate planning documents may not include non-biological, non-adopted children. In those cases, documents need to be tailored to take into account an expanded definition of a child, if that’s the non-biological parent’s wish.
Financial advisors and estate planners can help same-sex couples navigate the complexities of estate planning with descendants by providing the proper support on how to incorporate language into a will that ensures that children, biological or not, are legally entitled to the appropriate assets. The results of failing to properly define descendants or heirs can have unintended consequences, as it could result in assets not being divided equally between heirs (or heirs being disinherited entirely) and complicated legal procedures down the line.
Knowing the Terminology
As personal connections become critical when it comes to client prospecting and retention, financial and estate planners may hesitate to initiate planning conversations with those in the LGBTQ+ community out of fear of saying the wrong thing or using the wrong terms, or perhaps even the inability to relate.
However, there are many helpful tools to understand the variety of terminology people use to identify themselves. Additionally, asking clients which pronouns they prefer shows an understanding and willingness to respect their gender identity. Doing so helps open the door to the kinds of personal conversations that are necessary to truly understand the client’s needs.
Now more than ever, clients seek personalized advice and look to their advisors to deliver solutions and educational materials to help meet their goals. For advisors working with LGBTQ+ families and individuals, providing relevant, up-to-date financial literacy and estate planning materials that take into consideration the goals and unique financial and estate planning considerations of LGBTQ+ clients demonstrate commitment to helping meet their needs. Advisors should prioritize establishing themselves as a partner when it comes to planning for the future with an LGBTQ+ family or individual, ensuring that they have a clear understanding of personal and financial goals.
Revisiting Estate Plans
As the laws impacting marital and family rights of LGBTQ+ families have evolved, so too have their planning needs. For those who drafted documents prior to 2015, a thorough review is necessary to ensure they still meet the client’s needs based on the changes in laws. Now is the time to revisit those documents and discuss with clients how their needs and goals may have changed over the past few years, reinforcing the idea that estate and financial planning is an ongoing conversation, and an open dialogue is necessary.
Gina Nelson is Senior Vice President – Head of Fiduciary Services at Chilton Trust Company.