About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual Fiduciary Financial Planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the DREAM Financial Planning Process ™ to help our clients achieve their goals.
The LGBTQ+ community faces many challenges concerning estate planning. Family issues and differing laws between states can make the process of planning more complicated. In an effort to protect assets, members of the LGBTQ+ community must take time to establish an estate plan. Consider the following to make sure your wishes are followed. Keep in mind, the tips below are recommendations. The complexities of estate planning should always be discussed with an advisor or other financial professional.
Consideration #1: States and The Benefits of Marriage
The supreme court case Obergefell vs. Hodges legalized marriage between LGBTQ+ couples at a federal level in 2015.1 However, couples may be affected by state laws set in place prior to, or in response to, this law.
Beyond the cultural and celebratory factors of marriage, there are other logistical benefits to it that can vary by state. Those benefits that can impact estate planning include:2
- Filing joint or separate status: This can create possible tax breaks which can help couples accumulate wealth over time.
- Access to unlimited marital deduction: which allows married couples to make unlimited interspousal transfers of property without incurring a tax, either during their lifetimes or after their deaths.
Consideration #2: Establishing a Will and Distributing Assets
Studies suggest that individuals within the LGBTQ+ community are less likely to have a will when compared to non-LGBTQ+ individuals.3 This may be due to the added complexity of estate planning. But, the importance of a will to protect assets cannot be understated.
There are a few options to protect your will against being challenged. The option you select will depend on your circumstances, and it is always best to consult with a financial professional before deciding.
Two potential options for protecting your will include:4
- Establish a no-contest clause: A no-contest clause is a clear statement that explains the wishes of the deceased and their reasons for setting up their estate in the manner that they did.
- Establish a trust: Trusts can provide more protection than a standard will to ensure your wishes are protected.
Consideration #3: Ensure Custody Protection
At times, the custody of minor children may be challenged. A will should be established to protect against this. But as added protection, non-biological parents should file for legal adoption. This not only provides a level of custody protection but also makes the process of receiving an inheritance easier if the non-biological parent were to pass.4
Consideration #4: End-of-Life Care
For LGBTQ+ couples, handling your end-of-life issues may be very important, especially if you aren’t married. Making decisions for a spouse or partner in a time of need can be complicated, even more so for unmarried couples, who may not automatically be the legally recognized decision-maker. Documenting your preferences for care may make a huge difference. A will is a great starting point but is by no means the only documentation that may help ensure that your end-of-life wishes are respected.4
To help guide you on Estate Planning, we have created This Checklist. It covers key considerations regarding the most common estate planning documents. There are several types of documents that may help with your estate strategy:4
- Durable Financial Power of Attorney: A durable financial power of attorney designates someone (your spouse or partner) to make financial decisions on your behalf should you be unable to do so.
- Health Care Power of Attorney (or Health Care Proxy): If you are in a domestic partnership and unmarried, a health care power of attorney may be used to designate your partner or spouse as being able to make medical decisions on your behalf.
- HIPAA Privacy Authorization Form: This form allows doctors and other medical staff to communicate with your partner about your medical condition. Your power of attorney and/or trustee will also need this information as proof of your medical condition.
- Health Care Directive: This outlines what types of health care measures you would like if you are unable to speak for yourself.
Consideration #5: Protecting Real Estate
Property ownership is a large portion of estate planning. There are a few options for LGBTQ+ couples to ensure vested property rights for both individuals in the event of one passing.
Such options include:5
- Joint tenancy with the right of survivorship
- Tenants in common
- Tenancy by the entirety
- Community property
The availability of each of these options for LGBTQ+ couples varies depending on your state. Be sure to consult a real estate professional and financial advisor before moving forward.5
Consideration #6: Previous Relationships
Over time, the fluctuating nature of LGBTQ+ marriage laws has resulted in confusion. Changing state laws may have redefined the legal definition of a couple’s relationship, converting their marriage to either a civil union or domestic partnership.
In addition, prior relationships could affect individuals. For example, if a married individual split from their partner, then moved to a state that does not recognize LGBTQ+ marriage, their union would still be deemed legal. Both of these situations can cause estate planning challenges.
The complexity of estate planning for many LGBTQ+ couples can make the process challenging and stressful. A financial advisor or other financial professional can help ensure the process is clear and provide the information and actions needed to establish proper planning.
Dream Financial Planning Process ™
Whether you're managing student loan debt, starting a family, or considering buying your first home, the DREAM Financial Planning Process™ is tailored to the unique needs of busy professionals in their 30s and 40s. This process focuses more on short-term goals while you grow and evolve in your personal and professional life. If you're looking for guidance on Financial Planning, optimizing employee benefits, budgeting, student loans, and managing your 401k or investments, we can help.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your own savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio, feel free to send me an e-mail.
If you're looking for guidance on your investments, you'll want to read this month's Newsletter. In my April Newsletter, I discuss Gamestop, market speculation, long-term investment returns, and 9 investing mistakes you should avoid.
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