If there’s been one silver lining to the pandemic, it’s that it has motivated many people to prioritize estate planning.
That’s important because if you die without an estate plan in place, your assets may not end up where you want. The taxman may also take a much bigger bite than needed.
These issues potentially impact everyone. However, with fewer children and sometimes contentious family issues, estate planning is even more critical for same-sex couples.
Marriage Isn’t a Magical Panacea
The recent recognition of same-sex unions has, of course, helped couples realize tax savings and other legal benefits. While it is a huge step forward, unfortunately, it doesn’t solve everything. Same-sex couples still commonly face situations that require additional financial planning:
- Adoption of children by non-biological parents
- Navigating complex family dynamics where their union may not be viewed as acceptable
These unique issues can make estate plans for same-sex couples more vulnerable to challenge or even outright sabotage by unsupportive family members.
Your Best Defense is a Good Estate Plan
While these estate plans don’t need to be unique, they do need to be carefully done, or you can risk some issues down the road.
Also, because of the legal changes that have occurred recently, it’s wise to revisit any previously drafted documents to make sure they conform to today’s laws.
But first, let’s examine some of the basics to get you up to speed.
Estate Plan Basics
An estate plan is a set of written documents that dictate how you want your assets handled upon your death. It includes all the information needed to distribute your assets properly.
The assets in your estate plan may include real estate, investments, life insurance policies, and many other types of personal holdings. Your estate plan also includes directions on how to handle any liabilities you leave behind.
That’s a simple estate plan. You can also use more advanced estate planning strategies to accomplish much more, including saving taxes or protecting your assets from creditors or future family divorces.
Don’t Forget the Power of Attorney
One of the primary estate planning documents you’ll need is a will. However, there’s an equally important document you’ll need along with it: a power of attorney. A power of attorney protects your loved ones should you die. It also protects you if you become incapacitated by allowing someone you trust to make decisions for you.
If you’re in a same-sex relationship, a power of attorney can ensure your loved one can make your health and financial decisions for you (instead of an estranged family member). Even if you are close with your family members, the power of attorney ensures you retain the ultimate choice.
Charities or Beneficiaries?
If you and your partner don’t have children, don’t automatically think that your only choice is to give your assets to family. Siblings may assume you’ll make their kids rich because you didn’t have children, but it doesn’t have to be that way. It’s your money, so you should direct it where you want it to go. Increasingly, many people are directing some or even all of their assets to their favorite nonprofits.
It’s quite simple to leave your money to the charities of your choosing. Just incorporate that into your estate planning.
Should You Use a Trust?
Estate planning is part art and part science. You can achieve different things with different tools. Many people hear about trusts and wonder if one is right for them.
Trusts can be fantastic tools when used correctly. Still, these entities can also create headaches and extra costs if used unnecessarily.
Frequently, you can accomplish everything you need much more cost-effectively by using beneficiary designations. You avoid probate, and the assets transfer directly to your intended heirs. This way, you also avoid the extra costs and complexity of setting up and maintaining a trust.
You can list whoever you want as your beneficiary on assets, including one or more charities. Also, if you change your mind, swapping out a beneficiary is quick and straightforward.
While naming beneficiaries is quite flexible, there are a few quirks related to taxes. To maximize tax savings for your heirs, we usually recommend that you leave traditional IRAs to charities (instead of people) and leave Roth IRAs and non-retirement accounts to people. Working with your tax advisor, estate attorney, and your financial advisor, you can develop a plan that helps achieve your goals while maximizing the tax benefits of including charities in your estate plan.
While a trust can also protect your estate, it’s a lot harder to change. If you have an irrevocable trust, you can’t change it, period. That means you make a one-time decision, and you need to live with it, even if your circumstances change later. Plus, after you set up a trust, you must be careful to stay within trust guidelines, or you can create unintended consequences.
Because they can be more expensive, harder to change, and clients don’t always properly fund them, we don’t usually suggest trusts. There are a few exceptions, such as if you have out-of-state assets or an attorney strongly believes your situation requires a trust. But most of the time, we find that using individual beneficiaries is easier and less expensive.
Here’s another tip to avoid headaches: we recommend that you leave some money in a checking or savings account that isn’t included in a trust or beneficiary designation. That helps provide easily accessed cash to cover your final expenses and any state taxes that might be due.
Are You in a Long-Term Relationship, but Not Married?
If you’re in a long-term relationship but not married, consider one more document: a partnership agreement.
If you are not legally married, you cannot get divorced. A partnership agreement spells out the ownership of all assets (including valuables inside your home) and how to separate those assets should you and your partner separate.
I have worked with couples who had partnership agreements and those who did not take my advice. Those who separated and had the agreement felt the financial portion of the separation went relatively well. Those who separated without the agreement went through legal battles, gave up a greater amount of their assets than they may have otherwise, or their ex took everything and only left the debt. Do not be fooled into thinking that every relationship will last forever or that it will end well. Sadly, not all relationships last forever and many end poorly.
Doing It Right
As you can see, there’s a lot of complexity to estate planning, and even more when we delve into the unique challenges of same-sex couples. That’s why for most couples, it’s important not to make these financial decisions alone.
Talk first with your financial advisor and CPA to help clarify goals and discuss general strategies. Then, ideally, you should arrange a meeting with an estate planning attorney along with your other professionals so that you can incorporate advice from all parties.
But be careful, not all professionals understand the unique challenges of the LGBTQ community. For best results, you may want to consider seeking the help of an Accredited Domestic Partner Advisor sm, such as our team at Partnership Wealth Management. We also can recommend vetted attorneys who are knowledgeable about the unique challenges you face in this area.
A good estate plan ensures your assets go directly to the people and charities of your choosing, with a minimum of costs. It’s also there to protect you in case you’re unable to make your own financial or health decisions.
Don’t procrastinate! By getting an estate plan sooner rather than later, you can enjoy the peace of mind that your hard-earned assets will end up exactly where you want.
The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation. As a Registered Investment Advisor (RIA), Partnership Wealth Management is committed to providing our clients with financial planning and wealth management services to help them work towards their financial goals. At Partnership Wealth Management, we have a long history of working with the LGBT community. Among the many services we offer are financial planning and estate planning strategies for gay and lesbian couples. Financial planning is an important part of preparing for the future; contact us today to get started: www.partnershipwm.com
- Throughout my nearly 20 years as a Financial Advisor, I have seen some of the best and worst markets in our history. That experience allows me to approach my clients with the knowledge of how the markets fit into their greater financial picture. At Partnership Wealth Management we help everyday people who have accumulated wealth make sense of what they have and work with them to maximize their financial opportunities in a relaxed, comfortable, and professional environment. While we help people from all walks of life, many of our clients are same-sex couples searching for a knowledgeable, LGBT-friendly financial advisor to help them with their unique financial planning needs. I am a CERTIFIED FINANCIAL PLANNER™ professional and have the Accredited Domestic Partnership Advisor(sm) designation. As a Registered Investment Advisor, we are not tied to any company’s investment products allowing us to provide unbiased advice by offering a wide array of investments and other products to our clients. Since 2001, I have been writing articles on financial planning for several regional newspapers and have been a guest speaker on LGBT financial issues for various local and national organizations. Additionally, I have conducted financial planning workshops for large corporations and government agencies. Non-Profit Work I believe that it is important to give back to the community and currently serve as the treasurer for FreeState Justice and as a co-founder/president of Paws for a Cause. I’m a current member of several LBGT, environmental, and local community groups. Personal My wife, Heidi and I enjoy camping, hiking, and traveling with our daughter, Elise, and our dogs, Fenway & Roxy. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.