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Planning Considerations for LGBTQ+ Couples Thumbnail

Planning Considerations for LGBTQ+ Couples

Financial planning for the LGBTQ+ community has become less complicated with marriage equality.  The landmark 2015 Supreme Court Obergefell v. Hodges decision legalized same-sex marriage, providing legal protections and financial benefits to same sex legally married couples.  This includes spousal rights under qualified retirement plans, Social Security benefits, military benefits, and state intestacy laws.   Married same sex spouses may now freely pass money and assets back and forth without worrying about gifting limits. If a couple is unmarried, the annual gift tax exemption is capped at $17,000.

LGBTQ+ couples contemplating marriage should understand the financial benefits and impacts of marriage.  While many rights and benefits will be put in place without additional paperwork if you are legally married, federal protections and benefits may not be consistent in every state.  Some states have not equalized benefits or enacted antidiscrimination laws related to health care, housing, parental rights, adoption, and access to credit.   Even if protections exist now, there is fear the existing protections may change.  In addition, members of the LGBTQ+ community may face unique financial planning challenges, especially in health care, family planning and estate planning.   Do you know what legal protections currently exist in your state?   What financial and health care benefits might be impacted by the state you live in or changes in state laws?  

Medical Insurance and Health Directives

It is important to understand the benefits available to you and your family as a same sex married couple.  Legal spouses may be covered by their spouse's employer's health plan and access other health benefits.   This can include a health savings account (HSA) and/or flexible spending accounts (FSA). Other insurance can provide financial protection for your family in the event of illness, accident or death, and may include supplemental policies including as term or whole life insurance, disability insurance and long-term care. Insurance.  

A medical directive, or healthcare Power of Attorney (POA), is important to protect your rights and ensure your medical wishes are followed, whether you are legally married or not.  Keep it on file with your primary medical provider and take it with you when you travel.   The POA gives your partner the power to make healthcare decisions on your behalf.   Since it is possible a couple may encounter doctors or hospital staff who decide not to recognize a same sex marriage due to discrimination, the POA requires healthcare providers to respect your wishes.   Note: couples who are not legally married will not be afforded "next-of-kin" status for each other, and could be treated as legal strangers even in an emergency. If you are incapacitated, that could mean your significant other would be bypassed at the hospital and a relative would be called instead, even if you are not close with your family. 

Family Planning

LGBTQ+ couples who plan to have children may face additional costs: fertility specialists, sperm or egg donors, surrogacy, or adoption.  Contact your employer human resources office to learn whether you or your partner have access to any benefits for these services.   Most health insurance plans do not cover all of these costs.  Begin planning several years in advance to raise the cash needed - using a conservative savings strategy to fund the procedures that are not covered by insurance.     

State laws vary greatly with respect to the parenting rights of LGBTQ+ couples and access to services. Some states may require additional adoption procedures if one parent is a biological parent to a child but the other is not.  In some states, a hospital may refuse to take health care directives from a non-biological parent of a child born via surrogacy, even if a same-sex couple is listed as both parents on the child’s birth certificate.  It is best to consult with an attorney to make sure your parental rights are protected.

Social Security and Military Benefits

As a married couple, you gain access to spousal and survivor Social Security benefits. At full retirement age, spouses can receive the benefit to which they’re entitled as a result of their work history or a benefit equaling 50% of their spouse’s full retirement benefit, whichever is greater.  You are guaranteed Social Security spousal and survivor benefits, which also apply if you get divorced after at least 10 years of marriage.  You do not have to be on good terms with a former spouse, nor even know the person’s SSN to apply for these benefits.   The ex-spouse is not notified about such inquiries by the Social Security Administration. If you are an LGBTQ+ individual previously in a heterosexual marriage, if you were married for 10 years prior to divorcing your spouse, you may be eligible for Social Security spousal benefits.  Also, LGBTQ+ spouses of military members now greatly benefit from marriage equality.  The legal spouse is eligible for a wide range of military benefits, including pension survivor benefits, health care benefits and housing. 

Retirement Planning and Beneficiary Designations

Understand all of the retirement benefits you are legally entitled to for you and for your partner. Review your beneficiary designations for your 401(k) plans, 403(b) plans and IRAs to ensure they reflect your current intention. Most retirement accounts require your spouse to be the beneficiary unless they have given written consent to designate someone else. So, if you have designated a non-spouse beneficiary (parent, child, etc.) on a retirement account, you need written consent from your spouse to validate that designation.   

Note that an inheriting spouse can roll over inherited assets to their own IRA and defer required minimum distributions until they are 73 years old.  Now under the SECURE Act, a non-spouse inheriting an IRA must withdraw the entire balance within 10 years of the IRA owner's death.    

Domestic partnership agreements

Unmarried partners often do not have any legal protections for their assets if their relationship ends. Domestic partnership or cohabitation agreements and separation plans may help outline financial expectations during the partnership as well as how assets are divided if the relationship ends. But not all states allow for agreements by unmarried couple, so work with an attorney familiar with the state law.

Estate Planning, Gifting and Trusts

Marriage equality has made estate planning easier by providing spouses with more benefits.   Married couples can pass an unlimited amount of assets to their spouse after death without incurring federal estate taxes, and spouses can transfer property and assets to each other without having to pay income or gift taxes.  The tax liability can be even higher in states that have separate state gift, estate, or inheritance tax.  If you are a same sex married couple who has together since before 2015, your estate plan may pre-date your marriage.  Review your estate plan to ensure the documents are in sync with your current intent and current law.  

Passing away without an estate plan could result in inadvertently leaving money to the wrong people. If you’re unmarried, your assets would likely not go to your partner without a well-defined estate plan. This is also true for any children that are not natural heirs, which is sometimes the case for same-sex parents. Proper estate planning allows you to clearly determine to whom your assets go. Without a will, state intestacy laws dictate where your property goes. It could all be passed on to family members with whom you may have an estranged relationship or have not spoken to for many years. Doing periodic estate planning reviews is essential to ensure your assets will pass according to your wishes.

Consult with an estate planning attorney to set up a well-crafted estate plan.  The plan typically includes a Power of Attorney for financial decisions and a Will outlining your specific wishes regarding the distribution of certain types of assets.  The absence of a will could trigger your state's "default" distribution plan, which usually directs the assets to a legal spouse or, if none exists, to your blood heirs (the rules vary state by state).   This is especially important if you are not married and own a personal residence that you wish for your partner to continue living in after your death, or have assets with no assignable beneficiary that you want to leave to a partner. 

Your estate planning attorney can also advise about gifting to non-spouses in excess of the annual gift tax exclusion, titling your assets and setting up beneficiary designations for retirement accounts, life insurance policies, annuities, etc.  Your attorney may also recommend a revocable living trust; its contents are private.  Revocable trusts are flexible, can be changed while someone is alive and become irrevocable upon death. This is important because, unlike wills that can be successfully challenged, trusts cannot be contested by others, including family members who are antagonistic towards your lifestyle choices.  

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Best regards,

Janet Rhodes Friedman, CFP®, CDFA®, MBA




Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.


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