• Marie-Yves Nadine Jean-Baptiste

Why Financial Planning is vital for the LGBTQ+ community

Passage of Marriage Equality – June 2015


Marriage equality has simplified estate planning or LGBTQ+ couples, but unique challenges remain.

  • Retirement saving rates are not as high as the general population

  • Marriage rates are lower

  • More likely to pursue adoption or surrogacy, which have significant financial considerations

  • Many couples have complex estate plans that need to be updated or dissolved now that same-sex marriage is legal

  • Not all states have workplace protections for LGBTQ+ employees

  • Family conversations may be more emotional and difficult


With whom are you planning? (not about net worth, not about age, it’s about making sure your wishes are taken care of)

  • As a single person

  • With your significant other – no estate planning, no legal protections specifically for their assets if a relationship ends


Financial Advantages of Marriage

  • Income Taxes - Marriage penalty tax: Couples filing jointly pay more taxes than single individuals at higher income levels around $600K – $1M. But after a series of tax law changes that took place in 2018, that difference has now been reduced.

  • Social Security – Guaranteed Social Security spousal and survivor-ship benefits, which also apply if you get divorced after at least 10 years of marriage.

  • Health Insurance – Legal spouses may be covered by their spouse’s employer’s health plan, and other health benefits. Additionally, even if open enrollment has ended, a recent marriage is a qualifying event that generally will allow for a special enrollment period. Under health insurance plans, the expenses of an employee, their spouse, or their spouse’s children, may be eligible for reimbursement from a health savings account or a flexible spending account. There’s also dependent care FSAs that can be used for daycare and expenses of dependents.

  • Retirement Plan Beneficiaries - Retirement saving accounts, like 401(k) plans require that the spouse be a beneficiary, unless they give written consent to designate someone else. When you’re married, or if you’re married, your retirement plan beneficiaries in a plan such as a 401(k) requires your spouse to be that beneficiary.

  • Retirement Plan Rollover Tax Treatment - If you are a spouse, you are permitted to take your spouse’s retirement plan and roll it into an inherited retirement plan, and you’d be able to then stretch that retirement plan over the remainder of your lifetime. Generally speaking, somebody other than a spouse would have to take a retirement plan, roll it over into an inherited retirement plan, and unless you qualify as an eligible designated beneficiary, you may have to liquidate or most likely have to liquidate within 10 years of the date of death.

  • Military Benefits - LGBTQ+ spouses of military members may be some of the greatest financial beneficiaries of marriage equality. And it’s because a legal spouse is now eligible for a wide array of military benefits, potentially from spousal pension survivorship benefits, to healthcare, and also maybe housing.

  • Gift Tax/Unlimited Marital Deduction - There is something under the law called the unlimited marital deduction. Basically, the unlimited marital deduction or gift tax, when you’re married, gifts made annually to non-spouse count against your unified gift exclusion. However, if you’re married, you can transfer assets spouse to spouse without there being any kind of gift tax issue.

  • Estate Tax - If you are married, there is no estate tax between spouses. You can pass between spouses’ estate tax-free.


Considerations for Unmarried Couples

  • Ineligible for some spousal rights such as survivor benefits and elective share

  • Intestacy laws will disinherit partner and leave assets according to state statutes

  • Any gifts left to the surviving unmarried partner will be subject ot inheritance tax

  • The privacy offered by revocable trust could shield the management and distribution of estate assets from others

  • Develop a comprehensive and well-documented plan that could withstand a legal challenge from family members


Key Considerations if You Have Children

State laws vary greatly with respect to parenting rights for LGBTQ+ couples, and their access to services.

  • Custody - adoption procedures if one parent is a biological parent, and the other one isn’t, if I pass away and I’m a parent, who takes custody of my children

  • Adoption - Depending on your circumstance, typically when one parent dies, the surviving parent is legally considered the next of kin and assume custody over a couple’s biological or adopted children. How about when only one parent is the biological parent, or legally adoptive parent of the child, and the other person whom you’re in a relationship considers themselves the parent of the child, but they’re not legally the parent of the child? That’s where you might want to consider meeting with an attorney and discussing formal adoption proceedings. Depending on which state you live in, you may be able to do a second parent adoption, which would then legalize that the child is both of yours, related to both parents.

  • Guardianship - LGBTQ+ couples, you may have unique planning conversations when it comes to who will be the guardian of your child. Especially when one parent’s biological. For example, what you want to think about is you can control who’s guardian of your child, right? If you have someone in mind that you want to be guardian, doing a will and naming a guardian, the guardian nomination, if you put that in your will, must be approved by a court, but it’s definitely an important step in getting to a point where your wishes would be honored if you passed away.


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