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June 30, 2004 at 08:00 PM
The national spotlight on same-sex marriages this year has heightened interest in financial planning among gays and lesbians. But producers aiming to penetrate this market need to be prepared to do more complex planning, navigate an uncertain legal environment, and appropriately tailor their sales and marketing pitch, according to producers contacted by National Underwriter.
“The Massachusetts Supreme Courts ruling last February clearing the way for same-sex marriages has simplified planning at the state level in Massachusetts,” says Debra Neiman, a principal of Neiman & Associates Financial Services, Watertown, Mass. “It has, however, made planning more complex and cumbersome at the federal level, where gay and lesbian marriages arent recognized.”
Adds Susan Burns, a principal of Marshfield, Mass.-based Snug Harbor Financial: “Because of the complexity of laws, theres much more to consider. Producers have to be defensive in cobbling together all of the necessary protections.”
Advisors note, for example, that while same-sex couples in Massachusetts will be able to file a joint state return in 2005 for the 2004 tax year, they must continue to file individual tax returns with the IRS. And the marriage-protected benefits they enjoy in Massachusetts may or may not be recognized in other state and local jurisdictions.
Resolution of these issues, say advisors, will have to await a determination by state legislatures, ballot initiatives and the courts. Indeed, many advisors expect a wave of litigation at all levels in the coming years.
How, then, are producers to advise clients in this unsettled legal environment?
“What I tell clients is to plan as though one were not married,” says Burns. “Take advantage of benefits, but build in a safety net. Dont rest on the laurels of benefits that have been awarded because they may not transfer across state lines.”
To be sure, producers experienced in serving gays and lesbians observe they have long counseled these clients to be extra thorough in planning and documenting financial objectives. Where necessary, they advise same-same couples to leverage wills, the power of attorney, trusts and proxy statements to ensure that financial intentions which otherwise would automatically be protected by marriage are realized.
At times, however, legal instruments can engender as much harm as benefit. Neiman cites one client who could not bring himself to name his partner as the beneficiary of his 401(k) and company life insurance policy. The reason: The clients employer, and a tell-all human resources representative, were not well disposed to same-sex couples.
An alternative route in such cases is to name a third party as the beneficiary. But this decision is risky, given that the partner is at the mercy of the named beneficiary. The better option, say advisors, is to buy supplemental insurance from an outside carrier not under the employers auspices.
Detailed documentation here, too, may be key to securing a policy. Stuart Armstrong, a senior financial advisor for Signator Financial Network, Boston, Mass., notes that some insurance carriers continue to require clients to name a third-party beneficiary. Only after policyholders have provided evidence of an insurable interest and the policy is issued, can they redesignate the beneficiary in the partners name.
Getting discounted long term care insurance can be a still greater hassle. Armstrong says that newlywed heterosexual couples should automatically qualify for the discount at most LTC firms. But many firms require same-sex couples to be living together for 5 years to be eligible for the discount.
