Out & About

Without the safety nets of straight society, gay a

Christopher Street Financial looks about as Wall Street as Wall Street gets. There's the stone scrollwork and gold lettering over the building's entrance, the brass chandeliers and marble in the lobby, and, upstairs in the office, the black leather chairs and glass-topped conference table. Everything shouts Traditional, right down to Christopher Street's membership in the National Association of Securities Dealers. The only hint that something might be out of the ordinary is that amid copies of Architectural Digest and Martha Stewart Living stacked in the reception area is the latest issue of Out! magazine. And no, it's not a publication about camping and hiking.

Founded as the first investment advisory and financial services firm to specifically target a gay and lesbian clientele, Christopher Street Financial takes its name from a landmark moment in gay rights history: the "Stonewall Rebellion" of 1969, which began at the Stonewall Bar on Christopher Street in Greenwich Village. The firm, which is also a registered investment advisor, was established in 1981 by Bob Cassaletto, one of the first openly gay brokers on Wall Street. While fairly successful, the firm still had only five brokers when Jennifer Hatch and business partner Kermit Johns took the helm nearly four years ago. But since then, Christopher Street Financial has blossomed. Its complement of brokers, whose business cards now read "financial advisor," has tripled since the mid-1990s. Assets under management have reached $200 million, and the firm boasts more than 2,000 clients. The office is bursting at the seams.

It's easy to see why. Christopher Street is only one of a small, albeit growing, number of firms serving millions of gay and lesbian individuals in the United States today. Research conflicts over whether gay clients are wealthier than their straight counterparts; some studies tag this as a particularly lucrative market of two-income childless couples, while a recent study by the University of Massachusetts maintains that the gay "wealth advantage" is overstated, if it exists at all. Either way, gay Americans remain an underserved demographic group that can benefit greatly when financial planning is done right.

Hatch, 40, is proud that this is a firm of, by, and for the gay community. A fifth of the clientele is straight (many are gay clients' friends and family), but Hatch's focus is making sure gay clients feel comfortable enough to speak freely. "Some people may be very comfortable telling planners that they live with somebody or share finances with someone," she says, "but others won't because they fear being rejected." If clients aren't forthcoming about who's who and what's what, planners draw up plans that can't possibly succeed. As planners openly dedicated to serving the gay community, "people have a certain comfort level with us. It's one of the reasons we thrive," says Hatch.

Formerly a member of the institutional securities sales departments of J.P. Morgan and then Bear Stearns, Hatch came to the firm in part for that comfort level. "Christopher Street was a known, valuable brand name in the gay community, and this was a chance for me both to use my financial experience and to be an openly gay person," she says. "It's very hard, still, to be a gay person on Wall Street. This was a relief--kind of like having to wear a suit and tie to work each day and then all of a sudden having casual day every day."

A Different Path

Ask any of Hatch's clients what they hope to achieve through a relationship with a financial planner, and the answers are familiar. Their goals are basically the same as those of straight clients. Where things get tricky is in implementation. For example, without the legal right to marry, same-sex couples must worry about possible gift taxes when they wish to share an asset. Estate planning is even more complex without the right to roll over a partner's individual retirement account tax-free at their death. Separation becomes a whole new ball game without divorce laws to govern the division of possessions. As for who gets what at the time of death, laws governing distribution of assets for a person who dies without a will don't differentiate between a longtime same-sex partner and the Man on the Moon. Guess who gets left out in the cold?

An increasing number of planners have gained experience with such issues through dealing with unmarried straight couples, says Hatch, but many gay clients don't even realize that their situations require any special expertise.

One particularly dramatic story illustrates the point. When one of Hatch's clients, a young gay man in Florida, died suddenly in a helicopter accident, his family showed up at the house he shared with his boyfriend and offered their condolences. The sister offered to take the boyfriend out for a walk on the beach. When he came back, the family had changed the locks on the house. They'd even taken the dog. The house had been titled in the deceased man's name, and with no wills or arrangements to say otherwise, the family, as next of kin, now claimed it as their rightful inheritance. The boyfriend was, quite literally, left out in the cold. "He had to go to a judge just to get his stuff out," says Hatch. "And even then, who's to say what had belonged to him?"

Such stories, while not the norm, are unfortunately not uncommon--which is why estate planning is so crucial for Hatch's clients. "Our main objective is assisting them in creating an investment plan," she says, "but estate planning is so important that we make a point of doing referrals, bringing in attorneys, and explaining why they need to take care of this." Naming a gay partner in a will can go a long way toward making sure that longtime significant other doesn't get left high and dry. Yet naming an executor can be just as important.

"I had one client whose partner passed away, and because the partner hadn't specified an executor, a family member was arbitrarily chosen. That family member controlled everything, to the point that [my client] didn't get to participate in the burial. They didn't tell him where the memorial service was going to be, they didn't provide him with any information on the estate tax issues, he wasn't told when they would open up the safe deposit box," she says. "They made his life miserable." To

Christopher Street Financial

Jennifer Hatch

Christopher Street Financial

80 Wall Street, Suite 515

New York, New York 10005

212-269-0110

www.csfin.com

Year practice began: 1981

Year purchased by Hatch & Johns: 1997

Number of planners in office: 14

Number of clients of the firm: 2,100

Number of clients of her own: 15

Compensation method: Primarily commissions, but shifting to "fees"

Average fee for a comprehensive

financial plan: Currently included, but "this may change as the business moves from commissions to fees"

Fee for managing assets: 1.75% on the first $100,000; 1.5% on the next $400,000; 1.25% on the next $500,000; 0.75% on anything over $1 million

Client demographics: 80% are gay men and lesbians, most are from the New York metropolitan area

Education: B.A., political science, State University of New York, Purchase

Previous incarnations: Institutional high-yield bond salesperson at J.P. Morgan and Bear Stearns, institutional equity salesperson at Bear Stearns

Professional designations: None

Outside interests: Renovating and renting out real estate, playing tennis

Quotable quote: "You can't do an adequate financial plan for somebody without understanding who they're supporting, what their relationships are, who they want their beneficiaries to be, who they're trying to protect."

avoid this, she advises every client, regardless of net worth, to have an accurate, up-to-date will.

Clients are also encouraged to keep medical directives and medical powers of attorney current. Without them, same-sex significant others can be shut out of partners' hospital rooms when visits are limited to family only, and kept from making medical decisions regarding a partner's health. "If you're estranged from your mother who lives in another state," says Hatch, "you don't want her to be the one called to make decisions about your treatment when you're in a coma." As with estate laws for same-sex couples, the laws governing such documents vary from state to state, so Hatch and the attorneys must make sure clients make arrangements appropriate for their locales.

What's Mine Is Yours, or Not

Nearly everything written about financial planning for gay couples enthusiastically endorses domestic partnership, or "living-together," agreements. The gay equivalent of a prenup, this specifies the division of assets through contract law, rather than marriage law, should the relationship end. While she agrees they sound nice, Hatch is decidedly not a fan. "I can't think of a single person who actually signed one," she says. "It's a really great idea, and I have seen many people trying to construct these documents. But you know how hard it is to get some people to do estate planning? This is even worse: You're in the middle of a thriving relationship, and now you want me to talk about what will happen in the event of divorce?"

Hatch's solution is to break the agreement into bite-sized pieces, considering assets one at a time. "My recommendation is to construct simple ownership agreements that will relate to one particular asset that is purchased jointly, like a house," she says. "It's easier to swallow. Your problems are going to come from the large, joint assets, and you have to sign a million pieces of paper at a closing, anyway, so what's one more?" Such agreements must include "consideration," or payment, to both parties; for validity, each party must give something (financial contribution, labor on the upkeep of the house) and receive something in exchange (the right to live there, for instance). Additionally, the document can include no reference to the sexual relationship.

Ownership agreements can help clients skirt another major house-related problem, too: gift taxes on retitled assets. For straight couples, the retitling of assets is no big deal. If Mr. Jones adds Mrs. Jones's name to his $4 million house, the Internal Revenue Service won't blink an eye; married couples can transfer assets to one another freely without gift taxes. If Mr. Jones wants to add Mr. Smith's name, however, Uncle Sam will have a field day. No matter that the two men have had a committed relationship for 27 years. No matter that they've lived in the house together since 1982. In the eyes of the IRS, putting a non-spouse's name on the deed to the house is the same as giving him half of it. Therefore, once Jones uses his $10,000 annual exclusion and his $675,000 unified credit, he will have to pay gift taxes on the remaining value of his half.

If that isn't bad enough, should Smith die before Jones, the IRS will consider the whole house part of his estate. Unless Jones provides documentation to the contrary, Jones will owe estate taxes on the entirety of the house--which was once entirely his--simply for having tried to share it. "This is one of the biggest issues we see--purchasing assets or creating joint accounts without either an understanding of the titling issues or an ownership contract," says Hatch. Fortunately, ownership agreements can avoid these enormous tax burdens. But, like seat belts, they don't work if you don't use them.

The inability to legally marry also presents Hatch's clients with another dilemma: funding retirement. When a wife dies, her husband can take her 401(k) or traditional IRA, and roll it o

Planning Resources

Web Sites

The Gay Financial Network (www.gfn.com) Articles on financial solutions for gays and lesbians

Partners Task Force for Gay and Lesbian Couples (www.buddybuddy.com) A comprehensive resource for same--sex couples

IHateFinancialPlanning.com (www.ihatefinancialplanning.com) A smart, readable introduction to planning for gays

SameSexLaw.com (www.samesexlaw.com) Legal info on the formation and dissolution of same-sex partnerships

Viatical and Life Settlements (www.viatical-expert.net) Info on using proceeds from life insurance policies to fund the last days of the terminally ill

Books

Four Steps to Financial Security for Lesbian and Gay Couples, by Harold Lustig (Ballantine Publishing Group)

A Legal Guide for Lesbian and Gay Couples, by Frederick Hertz (Nolo Press)

Gay Money: Personal Finance for Gay Men and Lesbians, by Per Larson (Dell Publishing)

J.K. Lasser's Gay Finances in a Straight World, by Peter Berkery, Jr., and Gregory A. Diggins (John Wiley & Sons)

You can order these books online at www.investmentadvisor.com

ver, tax-free, into an IRA of his own. A same-sex partner, however, owes tax on everything in the retirement plan--a potentially huge bill. Although there's no way around this giant tax hit, there are ways to ease the pain. One way Hatch softens the blow is to spread the taxes out. A 1996 IRS Letter Ruling allows a non-spouse beneficiary to take the distribution over a period of five years, carving up the tax bill into more manageable pieces. However, "this can only happen if you have the specific name of the partner listed as the beneficiary," she cautions. "If you just list 'the estate' as your beneficiary, the IRA can't be stretched out."

With company-funded retirement plans, gay and lesbian clients come up against yet another challenge. Money from company-funded plans can be passed on to a spouse after the employee's death, but if there is no spouse--only, say, a gay partner--the money goes not to the partner, not even to the family, but back into the company's coffers. "I have one of those from J.P. Morgan," says Hatch, "and if I'm married when I die, my spouse has the right to collect my pension. If I'm not married, the money goes back to the company." For someone expecting to receive every penny of a partner's sizable retirement plan, the awakening could be rude indeed.

Join the Club

If there is a motto for planning for gay and lesbian clients, it is this: Be careful. Make sure clients keep good records of what they contribute to the purchase of joint assets. Help clients set up well-thought-out ownership agreements. Check that wills and medical powers of attorney are up to date. Make sure beneficiary designations say the right thing. Verify that they say the same thing the will does, and don't assume that the beneficiary designation is enough on its own; any conflict will cast doubt and create a perfect opportunity for unhappy family members to contest the estate. "These kinds of protections may seem really basic, but they're part of the package that people need to take care of," says Hatch. "We try to educate people on all these things."

Laws and rules vary from state to state, and a gay couple in Vermont will need a different set of documents than a gay couple in Nebraska. Since Christopher Street has clients nationwide, the planners will usually attempt to refer clients to attorneys in their home states, if not hometowns. Soon they may soon be able to refer clients to Christopher Street planners in their hometowns as well; the firm is opening a branch office in Palm Springs, California, and Hatch is actively hunting for new planners to staff offices in metropolitan areas across the nation. "We had hoped by now to have more physical representation in other cities, but we want people who are already experienced, and it's hard to transplant people," she says. "We're actively looking for opportunities to team up with the right people." Given the size of the niche and complexity of the issues, perhaps that right person might even be you.

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