Planning Challenges Persist for LGBT Clients Despite Marriage Ruling

At Pride Planners conference, experts discuss remaining legal, estate planning, advocacy issues for LGBT clients, married or not

The Supreme Court’s June ruling on Obergefell v. Hodges, which declared that state bans on same-sex marriage were unconstitutional, does not end many of the unique financial planning issues faced bylesbian, gay, bisexual and transgender individuals or couples. During Friday’s Pride Planners gathering — a preconference to the FPA BE national conference in Boston — experts from the legal, planning and advocacy areas discussed those tricky remaining issues.

Fred Hertz, an attorney in Los Angeles whose practice focuses on marriage and divorce issues, pointed out that especially for older LGBT couples, their prior valid or invalid marriages or domestic unions may complicate divorce and estate planning issues. “Life was simple 20 years ago,” Hertz only half-joked, “you had no rights.” But while waiting for LGBT rights to be acknowledged, “none of us could put our lives on hold.”

Therefore, “messy situations will come up” for longtime LGBT couples, including “When were you married? In what state?” While for straight couples, “there’s a short answer to the question: are you married?’” Hertz said that “for our clients, it’s a story” that might well include multiple legal couplings that complicate their current state, which he called “polygamy issue,” especially for those who were once married or had state-authorized civil partnerships that had dissolved.

“People have a right to divorce,” Hertz said, promising “I won’t pathologize divorce.” There is one benefit to being gay, however, “a more open approach to splitting up.” But “our clients don’t see the justice system as friendly,” and he sees a “discordance between marital laws in most states and the way lesbians and gays live.”

When he talks to clients about writing prenups or postnups, Hertz says he introduces the notion as “the legislature has already written your agreement” in a community property state like California. In such states, a judge deciding on a divorce settlement “can’t share any property held by one party before marriage.” Clients, he said, need to understand that before their marriage, saying “we bought a house” is inaccurate, and should rather say “he bought a house” or “she built up a retirement plan.”

As for pre- or post-nups, he encouraged the advisors in the audience to encourage clients to “see the pre-nup process as a way to bring” the couple closer together. “This is one way of taking care of one another,” Hertz said, by discussing their expectations, fears and hopes about what marriage will mean when it comes to their assets.

J.T. Hatfield Charles, an advisor whose Bethesda, Maryland-based firm, Financial-360, is affiliated with Raymond James Financial Services, jokingly claimed that he had invented a trademarked phrase to describe life for LGBT community following the Supreme Court’s Obergefell decision: The New Normal.

Gaining “marriage rights do not make us all alike,” said Hatfield Charles — an FPA ambassador to the LGBT community — before jumping into a review of what he learned from all the speakers in the day-long Pride Planners conference.

For those working with married gay or lesbian couples, he encouraged advisors “not to make assumptions” about the roles of each member of those married couples. Should you call one party the ‘husband’ or the ‘spouse?’ No, he answered, “ask them” what they want to be called.

On the estate planning issues, he told advisors to be particularly careful about titling everything from a bank account to ownership of a house, since the way you title ownership can “ensure access but also liabilities.” Changing the title on a bank account to add your new spouse, he warned, “makes it a gift,” even if it likely won’t be a taxable gift. In a property and casualty insurance area like automobile insurance, he raised the difference between being a “listed driver and an insured driver.” For homeowners, he suggested advisors should encourage clients to “talk about umbrella policies,” since it “brings the insurance company onto your side” in the event of a claim, since it forces the issuer of the umbrella policy to a “duty to defend.”

On taxes, Hatfield Charles noted that there were now “1,132 rights and privileges that are now ours” that weren’t there under the Defense of Management Act (DOMA), but that those benefits don’t extend to income taxes. “When you have two individuals” who are not married, “you can play some great [tax] breaks.” Now, however, while gay marriage provides spousal Social Security benefits and clients can benfit from a spousal IRA and a joint survivor annuity benefit, couples also must contend with the tax "marriage penalty."

Hatfield Charles provoked much laughter when he said that since the Supreme Court ruling, “all our software we have for retirement planning now works!” and gay couples in the military now have benefits.

On the estate planning front, before the Supreme Court ruling “we had to buy life insurance to pay estate taxes” when one member of a couple died, since gay couples couldn’t take advantage of the spousal estate tax exclusion. For his clients, Hatfield Charles said “I love revocable living trusts” and springing durable powers of attorney.

Still, he concluded, “we’re in a different world now — the New Normal.”

Hatfield Charles introduced speaker James Essecks, director of the American Civil Liberties Union's Lesbian Gay Bisexual Transgender & AIDS Project as a longtime advocate for equal rights in the LGBT community. Essecks began by saying that the Obergefell decision “came about by creating a cultural context in which this could happen.” Essecks went on to say, however, that “marriage is not synonymous with equal rights” for the LGBT community.

While the good news for the community is that legislation and judicial actions have gotten rid of sodomy laws, immigration bans, adoption discrimination and Defense of Marriage Act (DOMA) provisions, he argued that there were three broad areas where advocacy was still needed.

  1. Get rid of laws that require discrimination against LGBT people, such as two states (Nebraska and Mississippi) that retain adoption bans, and that there’s “lots of work to do” on behalf of the transgendered, including government documentation that reflects their proper gender, and requiring insurers to pay for medically indicated treatment.
  2. Pass civil rights laws “that cover us” on both the state and federal levels, including the possibility to extend the ban on sex discrimination arising from the 1964 Civil Rights Act to sexual orientation. Essecks said the argument against that extension is the same as that proposed by religious organizations that opposed the Civil Rights Act. However, the courts and Congress ruled the answer was “’no’ then,” as they could today.
  3. Get to a place of lived equality in the country. As African-Americans learned, just passing a law banning discrimination based on race did not create real equality. So LGBT advocacy groups, Essecks said, “need continued support,” especially to advocate on behalf of younger people, and for incarcerated LGBTs, who face sharply increased chances of violence in prison, and also for those in the workplace where discrimination can lead to dismissals.

--- Check out Olympic Star Jim Craig Tells FPA BE Attendees: Focus on Clients’ Dreams on ThinkAdvisor.

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