Though the Defense of Marriage Act, which did not recognize same-sex marriages, was struck down five years ago, many challenges remain for those in the lesbian, gay, bisexual, transgender, and questioning (LGBTQ) community. These challenges create unique factors that must be considered when financial planning such as: decisions around marriage, fear of losing employment or housing, concerns about long-term care costs, and more.
TD Ameritrade published an article in November of 2018 highlighting statistics and planning factors that the community faces. How do you create a financial plan that accounts for these factors? Read below for key considerations to help you get started.
The decision whether or not to get married is a personal one, but your decision will have an impact on your financial life. This impact can filter into many financial planning topics, notably Social Security and taxes. Your financial planner and tax adviser or accountant can help you understand how your specific situation may be affected.
Social Security Spousal Benefits: You can collect on your spouse’s retirement or disability benefits, if you did not participate in Social Security, or if your own benefit amount is lower than half of your spouse’s. There is also a survivor benefit for those who become widowed after being married for 10 years. These spousal benefits also carry over to Medicare, allowing you to collect medical benefits at age 65.
Taxes: You may pay more in income tax when you file jointly. Because the minimum taxable income for joint filers is slightly less than half of the amount for single filers, some of your combined income may be pushed into a higher tax bracket. There are some tax benefits that may work in your favor though. These include being able to take additional itemized deductions for medical and charitable contributions, or having a higher combined standard deduction.
Estate planning can be complex and involves planning for when you pass away, as well as if you become incapacitated and cannot make your own financial or medical decisions. You should have a last will and testament, power of attorney, and health care proxy in place.
Last Will and Testament: If you die without a will in place, your property is distributed according to state laws and a guardian is chosen by the court for minor children. Many times, state laws do not align with your personal wishes. That is why it is important to outline these wishes in your last will and testament, or in a trust. The assets that pass through your will are subject to probate, the court process of settling your estate. Any assets that pass through this process are made public. For those in the LGBTQ community, privacy may be a priority. By establishing a trust, you can remove assets from probate and avoid having your estate details open to the public. There are other functions that can benefit you by using a trust. You will want to consider your situation carefully with your estate attorney to determine if putting a trust in place is right for you.
Power of Attorney: Giving a trusted person power of attorney (POA) enables them to gain access to your financial accounts should you become incapacitated. Many people believe that, with marriage, a spouse has an automatic right to this access. That is not the case if there are accounts or properties titled in your own name. Your spouse will only have access to the assets that are held in joint name. You will need to explicitly name someone in the power of attorney documents. The powers given can be “durable” or “springing.” When they are durable, the person with POA has the authority upon signing the document, whereas springing power of attorney is not active until a doctor confirms incapacitation.
Health Care Proxy: A health care proxy is someone who can make medical decisions for you, if you cannot make them on your own. If you do not name this person, the doctor at the hospital decides who to consult or they require a court order. This can be complicated for an unmarried or even married individual who identifies as LGBTQ, due to potential discrimination or negative family dynamics. This document relieves this potential stress that can fall on your loved ones.
In 28 states, there are no laws explicitly protecting people from discrimination on the basis of sexual orientation or gender identity in employment. Possible discrimination in hiring, firing, and wages can make it more difficult for those who identify as LGBTQ to save for retirement. Ideally, you should defer the maximum amount into a tax-deferred employer-sponsored retirement plan or an Individual Retirement Account (IRA). If you are married and do not work, there are provisions allowing you to save for retirement. Your CERTIFIED FINANCIAL PLANNERTM can help you review your options to save most efficiently.
Another factor to consider is your beneficiary designation on your retirement accounts. Many in the LGBTQ community are hesitant to name their partner or spouse as beneficiaries on their accounts if they are not open about their sexual orientation or gender identity in their workplace. In states where there are no protections, the companies may choose not to honor their same sex beneficiary. This overlaps with your estate planning and should be carefully considered with your attorney and financial planner.
Long Term Care
The cost of long term care is a concern for many, especially with people living longer and the rising cost of health care. For those in the LGBTQ community, this concern can be greater if you are unmarried, do not have children, or if you moved away from your relatives or are not close with them. You should weigh the pros and cons of self-insuring versus purchasing long-term care insurance to help with some of these future costs.
Discrimination is also a risk when you apply to a nursing care facility, just as it can be for any housing decision in a state without protections. Choosing where to live is an important factor to consider. SAGE is an advocacy group for LGBT elders that provides resources and assistance in this area.
The considerations outlined here are only some of the unique factors affecting individuals who identify as LGBTQ. It’s important to ensure all factors are considered together in your overall plan. To learn more about how an adviser at Modera can help you put together a full financial plan, please contact us.
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