“When I started my career as a financial planner, I worked with a senior advisor who had a client with a long-term life partner. Within six months, this client, an executive in a well-known global company, passed away from cancer without having made a will. This was in 1998. His partner lost their house, which was inherited by the client’s sister. The partner did receive assets as a beneficiary of the executive’s retirement plan, but estate taxes took 40% of what he could have inherited.
“It was very sad—and it left a real impression with me that we had failed our client by not ensuring that he did the estate planning he needed to. The experience spurred me on to serve clients like these in a much better way.”
The advisor who’s speaking is Craig Lemoine. As director of the Chartered Financial Consultant (ChFC) program at The American College, Lemoine is now in a position to educate other advisors on working with clients who are gay, lesbian, bisexual or transgendered (LGBT). Last July, the College announced that it was adding new courses to its ChFC designation to help advisors address special planning issues for the LGBT community (see sidebar, “Earning Credentials in LGBT Planning”).
The Nontraditional Couple
Back in 1970, most Americans would have scoffed at the idea that by 2015 there would be 250,000 legally married couples of the same sex. And who would have thought that households of a married man and woman with one or more children would shrink to a small minority? But just 19.3% of U.S. households now fit the traditional type, compared to 40.3% in 1970, according to Allianz’s 2014 “LoveFamilyMoney” study.
In this study of modern family types, same-sex households with kids had a financial profile very similar to that of traditional families. Half (50%) described themselves as either wealthy/affluent or financially comfortable, and over one-third (37%) claimed a high level of financial security. (For traditional families, the numbers were 52% and 41%, respectively.)
However, these potentially desirable clients are being underserved. Only 48% of LBGT families said they work with, or have worked with, a financial professional, compared to 53% of traditional families. (Allianz queried 35- to 65-year-olds with household income of $50,000 or more.) The primary reasons to work with an advisor, said the LGBT couples, were better investment returns and help with financial decisions or specific financial issues—which makes them not so nontraditional after all.
The State of Marriage Rights
Currently, 35 U.S. states recognize marriage for same-sex couples. Since Section 3 of the Defense of Marriage Act (DOMA) was struck down by the Supreme Court in 2013, married same-sex couples residing in these states are also entitled to the same federal benefits as other married couples. Although this is a great step forward, it still leaves headaches for financial advisors whose LGBT clients live, or even travel, in states that don’t honor their marriage.
Moreover, in January the Supreme Court said it would consider a case challenging state bans on same-sex marriage; most observers expect the Court to overturn those bans.
In the 15 holdout states, “a client’s second cousin has more protection than the partner of 20 years might have,” said Joshua Hatfield Charles. Hatfield Charles, who is CEO of Financial-360 in Rockville, Maryland, and an ambassador for the CFP Board of Standards, has focused his 20-year practice on strategic planning for the LGBT community. As the spouse of a male husband, he also has personal experience with the vagaries of the law.
“If I get married in Maryland but live in Alabama [which does not recognize same-sex marriage], then I’m protected on the federal level, but not on the state level,” he pointed out. “Whereas if I’m married in Maryland and live there, I’m protected on all levels.”
The financial implications of a married LGBT couple’s state of residence can be enormous in a divorce or death. Consider the real-life case of a lesbian couple who married in one state but lived in another where same-sex marriage was not recognized. When one partner died, the other spouse was denied survivor benefits because Social Security (unlike most federal programs) is required to use individual states’ definition of marriage. Had the couple been living in a state that did recognize their marriage, the survivor would have received $800 a month in benefits.
Marriage or Not?
Sharon Rich, president and founder of Boston-area financial planning firm Womoney, has been in a long-term relationship with her spouse, Nancy, for 35 years. They’re the parents of two children, aged 26 and 23. Although they’ve been married since Massachusetts legalized same-sex marriage 10 years ago, it wasn’t until DOMA was declared unconstitutional that their financial situation became simpler in many ways.
“Our planning for divorce and estate planning shifted as a result of the federal recognition of our marriage,” Rich said. “Before that, if we co-owned a piece of property, the second person would have had to prove how she’d paid into it. After marriage, we were able to shift ownership of the property into both our names. Also, we could transfer gifts to each other without incurring taxes. If we’d lived in a state that didn’t recognize same-sex marriage, things would have been more complicated.”
Serving LGBT clients is one of Rich’s specialties, although she is not taking new clients at present. In 1999, she co-founded the PridePlanners Association with Debra Neiman and Sandra Reynolds to help advisors work more effectively with gay, lesbian, bisexual and transgendered clients. Now with 95 members serving all 50 states, PridePlanners will host its biannual conference in conjunction with the Financial Planning Association’s annual conference in Boston, Sept. 26–28.
“As the laws and social mores have changed, it’s been an evolution working with gay and lesbian couples,” Rich said. “Clients who have been together for many years may now be considering the implications of getting married. It’s important for planners to understand the legal implications of same-sex marriage in states that don’t recognize it, and to keep up with changing laws, working closely with the client and their lawyer.”
From a lawyer’s perspective, that teamwork is equally essential. “The legal and political movement for gay and lesbian marriage has been framed as a civil rights issue, not a couples and money issue,” said Frederick Hertz, a San Francisco-area attorney, mediator and author of “Making It Legal: A Guide to Same-Sex Marriage, Domestic Partnerships and Civil Unions.”
He said, “If a couple comes to me asking, ‘Would it be good for us to get married?’ I have to say to them, ‘Well, it’s not an “us” question. If you’re the low earner, it’s a great deal—you get to share in your partner’s assets. If you’re the high earner, you may end up paying alimony for decades.’ These will be very emotionally charged issues that the financial advisor will need to discuss with them.”
What Advisors Need to Know
The first thing financial advisors need to know to work well with same-sex couples, said Hertz, is the legal landscape in their state on the particular day they’re meeting with their clients. Is marriage recognized? Is there a marriage-equivalent registration such as civil union or domestic partnership? Or is the only option for the couple to have a private agreement regarding money and assets?
Knowing the landscape enables a planner to advise people about their options. It’s also a way of signaling to the couple that you care about their concerns. “If you’re not up to date on this information, they’ll fire you or never hire you in the first place,” Hertz said. “Why would I go to someone who doesn’t care about my concerns and isn’t knowledgeable about them? It’s like going to someone to fix my Volkswagen who says, ‘I don’t know anything about Volkswagens, but I’ll try fixing yours.’ This doesn’t inspire confidence.”
Once you’re familiar with the law, Hertz noted, you need to know who legally owns the assets. You may need to explain this reality to your clients to see whether it matches the emotional reality of how the couple considers them to be owned. If it doesn’t match, he said, the couple will often need to work with a marital attorney in order to retitle their assets.
A prenuptial or postnuptial agreement may also be desirable. In his own work with gay and straight couples as well as family businesses, Hertz spends half his time on relationship formation (e.g., prenups, nonmarital cohabitation agreements, real estate co-ownership agreements) and the other half on relationship dissolution (mediating or advocating for partners in breakups).
Aside from the intricacies of asset ownership, LGBT clients may need significant help in preparing for retirement. In a 2014 study of adults aged 45-75 by SAGE (Services and Advocacy for LGBT Elders), more LGBT adults were “very concerned” or “extremely concerned” than their non-LGBT counterparts on several vital issues:
Outliving their money: 42% of LGBT versus 25% of non-LGBT adults
Not having enough money to live on: 51% of LGBT versus 36% of non-LGBT adults
Having to work well beyond retirement age in order to have enough money to live on: 44% of LGBT versus 26% of non-LGBT adults
Being lonely and growing old alone: 32% of LGBT versus 19% of non-LGBT adults
That said, the solutions you recommend don’t have to be different for LGBT and non-LGBT clients. Advisors who work with gay couples and individuals have found that sexual orientation has little or nothing to do with the way people’s brains are wired to either spend or save for tomorrow. As Registered Financial Consultant Lori Atwood of Lori Atwood—Fearless Finance in Washington, D.C., put it, “Differences exist more between personality types—spenders, savers, etc.—than between gay and straight clients.”
Tip: Don’t Assume
It may seem obvious that planners shouldn’t judge how a client handles funds or try to impose his or her own morals or assumptions. Ultimately, Rich of Womoney pointed out, a planner should be sensitive to the unique needs and attitudes of each client.
One key is not to make assumptions about gender. As attorney Hertz told us, “I was just mediating a lesbian divorce, and when I used the pronoun ‘she’ in referring to a client’s new partner, she corrected me: ‘No, it’s a guy.’”
He continued, “So be open minded, be curious and don’t make assumptions. Ask people what pronoun they prefer to use. It is totally fine to say, ‘I’m new in this line of work. I’m not familiar with what is appropriate. What pronoun do you prefer I use in referring to you?’ Being aware of differences is not bias, it’s sensitivity.”
We made that mistake ourselves in referring to Hertz’s mate as his “life partner.” He made a face. “I hate that term! We just call each other partners.”
“You want to refer to your clients in a way that makes them comfortable,” agreed Stuart Armstrong, a financial planner at Centinel Financial Group in Needham Heights, Massachusetts. “Ask how they refer to each other: partner, life partner, spouse, husband-husband, wife-wife or ‘hey you!’ Fact-finder documents used to say ‘husband’ and ‘wife,’ which was off-putting. Now they’ll say ‘Partner A’ and ‘Partner B’ or ‘Spouse A’ and ‘Spouse B.’”
A member of the FPA National Board of Directors, Armstrong is also the treasurer of PridePlanners. He said, “I’m married myself, and we refer to each other most often as partners, though I have used ‘husband’ occasionally.”
Also, find out if an LGBT client is out of the closet. Armstrong himself went through “a long, difficult coming-out process” over 30 years ago. “But when I was hired by this firm where I’ve worked for 29 years, I was hired as an openly gay man,” he said. “That’s made my career much easier.” But, he pointed out, “Not everyone is ‘out’ to everyone. If you’re making inquiries about a client, you need to know what level of sensitivity to use.”