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Consumer article: Addressing the Unique Financial Issues Faced by Same-Sex Couples

Addressing the Unique Financial Issues Faced by Same-Sex Couples

Much has changed for same-sex couples since the U.S. Supreme Court ruled in 2015 that states must legally recognize same-sex marriage. By giving same-sex couples equality with heterosexual couples in the eyes of the law, the decision afforded them access to more than 1,000 legal benefits, rights, recognitions and protections, many of which have a bearing on their financial lives, from the ability to file joint tax returns to the right to share Social Security benefits to access to an unlimited estate tax deduction on the transfer of wealth between a deceased spouse and his or her surviving spouse.

Despite now being on equal legal footing with their heterosexual counterparts, at least with respect to marriage, same-sex and LGBTQ couples, married or not, continue to face a unique set of financial issues. Here’s a look at four areas where these issues can be particularly challenging, with suggestions from financial professionals on how to address them.

  1. Going from partnership to marriage. With the legal impediment to same-sex marriage having been eliminated, many LGBT partners have decided to marry. And in doing so, they’re having to work through significant financial issues they otherwise may not have needed to address before same-sex marriage became legal. Among the issues to which recently married partners may need to give greater consideration:
  • Social Security benefits: Marriage gives spouses the right to access one another’s Social Security benefits. That’s an important development in a range of scenarios, including with couples where one spouse works and the other does not. The non-working spouse has the ability to access up to 50 percent of their working spouse’s benefits, despite not putting money into the Social Security system. This income can add up over time. Being married also provides more claiming options following divorce or the death of one spouse.

  • Health insurance: With marriage may come the ability to access spousal health insurance coverage, without that coverage being taxed as income, as it would otherwise have been in the case of domestic partners who aren’t married. Not only do same-sex couples now have the ability to cover their partners on their health insurance policies without extra tax consequences, if both spouses have access to a workplace health plan, they can decide whose plan to insure under based on which plan offers the best value.

  • Investing for retirement: In a married couple with a spouse who doesn’t work, the working spouse can contribute to an individual retirement account in the name of the non-working spouse, and by doing so access the tax benefits associated with IRA contributions, such as income tax deferral. One caveat: The working spouse’s income must equal or exceed the total IRA contributions made on behalf of both spouses. Also, marriage gives a spouse inheriting an IRA from their deceased spouse the option of rolling over those inherited assets to their own IRA and deferring the required minimum distributions from the inherited IRA.

  • Income Tax: Married same-sex couples now have the option to file jointly, which could reduce their overall tax tab compared to what they would pay filing separately. Filing jointly also can cut tax-preparation costs and shield the other individual against liability. However, because there are situations where filing separately may provide a better outcome (i.e., a lower overall tax tab) for a married couple, be sure to get guidance from a tax specialist before choosing one route or the other.

  • Wealth transfer: With the unlimited marital deduction, a married person can leave any amount of assets to his or her spouse without triggering federal estate taxes.

  • Military benefits: Same-sex spouses of military members are now eligible for a variety of military benefits, including pension survivor benefits, health care and housing.

  1. Partners who choose not to marry. While same-sex marriage is now legally recognized, not all couples choose that route. For those that opt to remain partners without marrying, “there a few important things to keep in mind,” says FPA member Charles C. Weeks, a CERTIFIED FINANCIAL PLANNER™ professional (CFP®) who heads Barrister Wealth Management in Philadelphia, Pa., to protect their assets and preserve their ability to have the final say in key financial decisions, lest their right to self-determination be diminished by the law’s treatment of non-married couples.

First and foremost, that means taking steps to specify how certain key assets and decisions should be handled should one or both partners die, he says. The goal in doing so is to avoid putting those assets and decisions in the hands of state probate court, where the intentions of the couple and the deceased partner can be challenged, even if they have been put in writing (such as in a will), and where the process of distributing assets can become painfully slow and highly public. Couples can circumvent probate using contract law, property law and/or trust law, notes Weeks. “If you allow your estate to go through probate, anybody — and I mean anybody — can challenge the will. Even the best drawn will is subject to a will contest.”

So, be sure to name a beneficiary or beneficiaries for retirement accounts [IRAs, 401(k)s, etc.], investment accounts, life insurance policies and the like, and keep them current as life circumstances change. Naming beneficiaries for these assets keeps the assets out of the probate process. Putting assets into a trust for which there is a beneficiary or beneficiaries also keeps the trust and the assets inside it out of probate.

Also be sure to have a will that you keep updated — and this goes for married as well as unmarried couples — with instructions for who will assume guardianship of your children (if you have any) and how your property (home, a collection that has value, etc.) is to be handled when you die. Otherwise, during the probate process the state may fall back on default provisions for distributing assets to the blood heirs of the deceased person. Whether they are married or not, couples also need to title their property so it has either “tenants in common” or “joint tenants with rights of survivorship” status (laws differ from state to state), suggests Weeks.

Since the law does not typically afford them next-of-kin status unless they are married, individuals in an unmarried same-sex couple who want to determine who makes key financial, medical treatment and end-of-life decisions on their behalf also need to document their wishes and intentions with a living will, healthcare proxy and powers of attorney. These documents are critical for both married and unmarried couples.

  1. An apparent gap in planning and preparation. According to a study released by Prudential in December 2018, LGBTQ are less likely to own financial products such as retirement accounts, certificates of deposit, even savings and checking accounts. For example, 41 percent of non-LGBTQ respondents to the Prudential survey said they have an employer-sponsored retirement plan, compared to 27 percent of LGBTQ respondents. Meanwhile, roughly half of LGBTQ respondents indicated they have a basic banking product such as a checking, savings or money market account, or CD, compared to two-thirds of non-LGBTQ respondents. What’s more, despite comparable access to workplace retirement plans, LGBTQ respondents are saving less for retirement than their non-LGBTQ counterparts. In the Prudential study, close to two-thirds — 62 percent — of LGBTQ respondents said they are not currently saving for retirement in any way. Among non-LGBTQ respondents, that share is 49 percent.

Figures like these suggest that same-sex couples need to focus more on positioning themselves financially, both for the present and the future.

  1. Protection in case of discrimination. The 2015 Supreme Court ruling may have evened the marital playing field, but it left other perceived inequities involving LGBTQ people untouched, including the lack of full federal protection for LGBTQ people from getting fired for their sexual orientation. Today in the United States, 28 states lack laws that explicitly protect people from discrimination on the basis of sexual orientation or gender identity in employment, housing and public accommodations, according to the organization Freedom for all Americans. This lack of universal legal protection opens the door to job insecurity and pay inequities that may require LGBTQ couples and individuals to prepare differently than their non-LGBTQ counterparts do.

The emergency cash reserve is one such area. “Many same-sex couples are in a situation where they live in a state where they could be fired for their sexual orientation, so an emergency fund [consisting] of 10-12 months’ [worth of household income] becomes even more important than the [three to six months’ worth of household income] typically suggested” for an emergency fund,” says FPA member Anthem, AZ-based CERTIFIED FINANCIAL PLANNER™ professional Michelle Buonincontri.

May 2019 — This column is provided by the Financial Planning Association® (FPA®) and FPA of San Diego, the principal membership organization for Certified Financial PlannerTM professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide more than 23,000 members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource in the advancement of today’s CFP® professional. Please credit FPA of San Diego if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.

 

 

Consumer Article April 2019 Powers of Attorney: Why They Matter and How They Work

Powers of Attorney: Why They Matter and How They Work

 

If you’re someone who wants a say in how your financial, business and household affairs are managed, and who manages them, should you yourself be unable to do so, if you want to dictate how certain decisions about your health and well-being will be made, and who will make them on your behalf, should you lose the capacity to make those decisions yourself, then it’s important to put all that in writing, in legal documents that are known generally as powers of attorney.

 

Powers of attorney refer not to a certain lawyer’s superhero attributes, but rather to the legal authority a person (known in legalese as the “principal”) assigns to another party (such as a spouse, family member, friend, trusted adviser, attorney, etc.), giving that party the power to make decisions on behalf of, and execute the wishes of, that person, in circumstances where that person is not in position to make those decisions for himself or herself, as a result of being incapacitated, for example. The party to which the principal confers power of attorney thus becomes that person’s agent or “attorney-in-fact.”

 

Powers of attorney can be applied broadly or narrowly. They can be structured to apply to specific functions in specific circumstances, for specific periods of time. They are a vital legal and planning tool for people who want to ensure that their wishes are carried out, their assets are handled in a certain way, their intentions are fulfilled, and their interests are protected should they be unable to do so themselves. Without powers of attorney in place, those responsibilities can default to the legal or judicial system, where a person’s wishes, intentions and interests may be open to greater scrutiny, interpretation and thus, uncertainty.

 

For the clarity that powers of attorney documents, as well as a will, provide to others about your wishes and intentions should you be unable to communicate them yourself, it’s critical that adults incorporate them into an estate plan, before the unexpected strikes. “If these simple documents are not in place, it may be required to petition the court to appoint a decision-maker or guardian,” explains FPA member and CERTIFIED FINANCIAL PLANNER™ (CFP®) professional Gregory Kurinec of Bentron Financial Group in Downers Grove, Ill. “This process can be costly and is undignified. By taking the time to plan before something happens, this will save you and your family a lot of unneeded stress, angst and cost.”

 

And as FPA member Peter Creedon, CFP® with Crystal Brook Advisors in New York City, notes, powers of attorney and estate plans aren’t just for the wealthy — people with a high-value “estate.”

 

“Everyone should have these [POA documents] in place. They don’t have to be fancy. They just need to be thorough and legally sound.”

 

As useful as powers of attorney can be to provide clarity around your wishes and intentions, which types are warranted in your situation, and why? Here’s a brief overview of the various types of POA and their application:

 

Specific (or limited) power of attorney: Here a person authorizes a party to act on their behalf on a limited basis, to perform a specific function (or functions), such as to represent them in the closing of a real estate deal. The power of attorney also can be limited to a specific date or period of time.

 

General power of attorney: In this case, a person authorizes a person or organization to broadly act on their behalf to manage financial and business transactions and accounts, pay bills, handle taxes, operate business interests and generally oversee personal and financial matters.

 

Healthcare power of attorney (or healthcare proxy): This is where a person authorizes another party to make medical decisions on that person’s behalf if that person is unable to make those decisions on his or her own. Along with a healthcare POA, it’s also wise to put in place a living will (also known as an advance healthcare directive). This is a document that specifies your wishes for treatment and end-of-life care, should you become incapable of communicating those wishes yourself.

When to put a power of attorney document in place? That depends on the person. Generally, anyone age 18 or over can designate a power of attorney. In many cases, however, people wait until later in life to put these documents in place. The key is not to wait too long.

 

Whom to designate as an agent/attorney-in-fact? This is a decision not to take lightly. Whom do you trust to fulfill the responsibilities that come with the designation? Does that person have the skills, temperament and know-how to carry out those responsibilities? Is that person willing and able to meet those responsibilities on your behalf?

 

Where/how to get power of attorney documents? While there are sites online that offer power of attorney forms and templates for the state in which you reside, if you decide to go the do-it-yourself route, you need to be sure the document(s) you are filing satisfy all the requirements of your home state. To be sure POA documents are legally sound, comply with state requirements and are filed with the appropriate agencies and entities, Creedon suggests enlisting an estate attorney. “Having a licensed attorney do it for you shouldn’t cost that much, and the peace of mind you get, knowing it was done right, is worth it.”

 

April 2019 — This column is provided by the Financial Planning Association® (FPA®) and FPA of San Diego, the principal membership organization for Certified Financial PlannerTM professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide more than 23,000 members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource in the advancement of today’s CFP® professional. Please credit FPA of San Diegoif you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.