Financial Planning For LGBTQ+ Couples

Published June 28th, 2022 
Reading Time: 8 minutes
Written by: The Zoe Team

LGBTQ financial planning has plenty of unique and different considerations that require careful thought and planning. These are legal, healthcare, family, and estate planning challenges that should not be overlooked. 

According to a recent study, 62% of LGBTQ+ respondents said their gender identity or sexual orientation caused them to experience financial challenges. LGBTQ financial planning has plenty of unique considerations that require careful thought and planning. There are misconceptions about what LGBTQ+ individuals need when it comes to financial planning, as well as key legal and estate planning elements that need to be considered. Below we debunk:  

Debunking Misconceptions of LGBTQ Financial Planning

“You’re gay; you must be loaded, right?!”  

There is a misconception that marriage and kids are traditionally for a heterosexual relationship. Meaning LGBTQ+ individuals don’t need to spend money or plan for kids, and keep their money independent from their partner’s… so the “family money” nonsense isn’t a thing. 

In efforts to break these misconceptions, there are wealth planners with personalized expertise helping LGBTQ+ families with their financial planning. Many of which involve expenses for their growing family. Whether they will do IVF, co-IVF, or adoption, there are many options, and the common denominator among them is that all options are expensive! Healthcare plans generally do not address or have comprehensive same-sex family planning benefits included. Meaning, most, if not all, of the cost, is out of pocket.

What’s so complicated about LGBTQ financial planning?”  

Just because same-sex marriage is legal doesn’t mean there aren’t unique planning considerations for LGBTQ+ families. There are legal considerations, healthcare considerations, family planning, and estate planning, not to mention it’s still not easy to navigate society. 

A significant consideration is planning for a family and the expenses associated with it. Regardless of how you plan on having a child with your partner, you will most likely incur an additional cost that needs to be accounted for. Not to mention all of the healthcare considerations not covered by healthcare plans. A separate savings account or an emergency fund will significantly help if you ever encounter an unexpected health cost. 

The law allows same-sex individuals to get married, and there are legal advantages to it, but there is still a lot of planning that shouldn’t be overlooked. How to know what stage you need to be planning for? A financial advisor can help navigate every financial planning stage if you’re in a same-sex marriage or soon-to-be!

“What do I do if these rights I’ve been granted in recent years are taken away?”

An essential part of a wealth planner’s job is asking lots of questions. While financial planning, in general, is deeply personal, in this space, it can be intensely personal. And if they don’t acknowledge and educate themselves on the complexities and unique factors of the widely diverse LGBTQ+ community, they might be doing you a disservice. 

To anyone in the LGBTQ+ community seeking financial advice: feel empowered to first ask your current or potential advisor if they have experience working in this space. And for those advisors seeking to be a better ally to serve the community, there are many resources to help deepen your understanding of LGBTQ+ history, the crucial factors to consider with planning, the additional questions to ask your clients, and more.

“How Can I Align My Investments With My Values?”

Most people who invest do it for the returns. At the end of the day, everyone wants to grow their wealth, right? But one recurring and trending investment question is whether or not an investment plan set in place is aligned with your values. And this is a prevalent question for LGBTQ+ community investors, and it comes up very often in the financial planning conversation. Ultimately, we want to bet on investments and companies that are ethical and transparent behind the scenes. 

If you’re doing your own research for your investment selection, look into more than the financials. For example, consider the Human Rights Campaign Foundation and its Corporate Equality Index (CEI) report of companies’ performance contributing to LGBTQ+ equality in the workplace.  

Throughout your research, you’ll be able to evaluate a company based on more than its potential growth and ensure it’s aligned with your preferences and values! 

The best way to ensure your investments are aligned with your values is by working with LGBTQ financial advisors who have expertise in your specific financial situation and can guide you accordingly.

Make Sure Your Estate Plan is Up-To-Date

If you’ve lost a loved one and played a role in settling their affairs, you’re likely aware of the importance of having a proper estate plan in place. The lack of proper planning can cause a huge headache for loved ones left to navigate the disposition of assets and, likely, the probate court system. 

3 Estate Planning Tips for Same-Sex Couples

While planning for an unfortunate event is never nice, unmarried couples in serious relationships should always prepare for the unknown. Same-sex marriage is legal and has leveled the playing field in more than one area; it’s not a 100% safeguard when estate planning. Ever wondered what would happen in a custody battle over children who may not be the biological offspring of the surviving parent? Exactly. 

There are three crucial estate planning areas that LGBTQ+ community members should hone down on.

1. Who Inherits Your Assets?

If one partner in an unmarried, serious relationship passes away without a will, the deceased’s assets will go directly to their family, which may leave the other partner with nothing. Without a will, your state essentially creates a will for you upon your passing through a process called intestacy. State intestacy laws rarely include domestic partners, meaning your assets may go to people you do not intend to receive. 

Besides being simple to set up, a will doesn’t have to be too specific and allows you to name a guardian for your children. However, wills can be contested in court by anyone who thinks they have a legal right to your assets. Therefore, you should also consider establishing a trust to eliminate almost all concerns about probate or a contestation from hostile family members. While more expensive than a will, a trust has many advantages, including (but not limited to):

Avoiding probate – Because probate is a public process, establishing a trust will keep your estate private. In addition, a trust eliminates the potentially expensive probate costs and can expedite the distribution of assets to beneficiaries.

Flexibility – A will only goes into effect after you’ve passed away. A revocable living trust, however, is effective immediately, and you remain in full control of it throughout your life. A trust also gives you more control of your assets after you’ve passed away by allowing you to specify precise intentions that your successor trustee must execute.

One important thing to note is that establishing a trust doesn’t solve all your problems. You must fund the trust by titling your specific assets and accounts in the trust’s name in order to receive its benefits. Items that are not in the name of the trust will likely go to probate.

2. Incapacitation and End-of-Life Care

Wills and trusts are vital to a well-rounded estate plan, but there are other equally important documents to consider. If your partner or spouse is incapacitated or approaching their final days, their partner or spouse may be questioned about the validity of their role. Creating these documents while you are healthy can make the process a little less emotional than it might be otherwise. Additionally, you should review these documents every so often to be sure the people appointed to take care of you are still the ones you desire to do so. For that reason, same-sex couples should document their wishes through the following:

Healthcare power of attorney (proxy) – In the event of incapacitation, the healthcare power of attorney allows you to designate someone to make healthcare decisions on your behalf. This is important because it allows you to specify what treatments and care you do or do not want while you’re in an incapacitated state.

Healthcare directive – A more specific version of the healthcare power of attorney, the healthcare directive allows you to designate your wishes for end-of-life care or any potential life-saving treatments.

Durable financial power of attorney – This power of attorney varies by state, but it allows you to elect someone to handle your financial affairs in the event of your incapacitation.

3. Beneficiary Checkup

This one can’t be stressed enough. It is imperative that each partner keeps all their beneficiary designations up to date. It is imperative that each partner keep all their beneficiary designations up to date. An incorrect or outdated beneficiary designation could lead to an inadvertent, yet costly, mistake in directing your estate. Imagine having a large life insurance policy or a sizable retirement plan and leaving your estranged ex-spouse as the 100% primary beneficiary. This actually happens! Here are a few tips to keep things tidy:

Don’t forget to name a beneficiary – Accounts with no beneficiary may be subject to the potentially costly and lengthy probate process. In addition, be specific. There are many people out there who have the same name. So, be more specific by adding a Social Security number or date of birth to the beneficiary designation.

Review all account beneficiaries on an annual basis – Be sure to check all your accounts, including life insurance, IRAs, 401(k)s, annuities, mutual funds, etc.

Transfer on death – While your life insurance and retirement accounts should have a clear beneficiary designation form, other accounts may not. Bank accounts and investment brokerage accounts likely have a transfer-on-death designation, which will help your beneficiaries avoid the probate process.

LGBTQ Financial Planning in Summary

Just because same-sex marriage was legalized more recently it doesn’t mean your financial considerations aren’t different. You should be extra careful with your finances when you are planning for a family, and even planning for. 

These are some of the steps to ensure you have a proper estate plan in place. After implementing these suggestions, you and your loved ones will certainly rest easier knowing your affairs are in order, should the worst happen. That peace of mind will be something you can all take comfort in now and into the future.

Disclosure: This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

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