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LGBT and modern families: What advisors need to know

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There are many areas in which the recent legal developments have meant big changes for the LGBT community. In fact, just due to the fall of DOMA alone, there are 1,138 federal laws and protections that are now afforded to the LGBT community. That’s a staggering number, and evidence of progress indeed. In the following article, you will see a high-level overview of the most common questions that come up in dealings with non-traditional clients, as well as brief answers to get you started. Obviously, there are many variables that can change answers for each individual person and each family unit, so it’s important that you take into account your client’s individual situation before you proceed. 

At the time of this writing, same-sex marriage is currently legal in over 70 percent of the states. There are also gray areas where some states have had their gay marriage bans ruled unconstitutional, and are working through various appeals. 

Social Security and Medicare 

With the death of DOMA, legal state-administered same-sex marriages are now recognized by federal programs such as Social Security and Medicare. Now your client can access partner benefits in a way that they wouldn’t have been able to before. Not only is it plainly fair — they have been paying into these systems as taxpayers regardless of their ability to take advantage of marriage — but it will no doubt improve some of the issues that elderly people in the LGBT community face as they age and need assistance via partner benefits. Social Security and Medicare recognize trans-spouses, as well. 

Military benefits 

Much like the benefits above, now that DOMA and the “don’t ask, don’t tell” policy are gone, if your clients are married, they can access their spouse’s military benefits if they are serving or are a veteran of the armed services. Not only can they now serve without fear of being dishonorably discharged or otherwise forced out, they can live openly together with military assistance as other military families have done for years. 

Federal and state tax benefits 

Just by changing their tax status to “married filing jointly,” they can save thousands of dollars. We now have more choices in tax planning, and this is obviously something that ties into long-term financial planning as well. 

Legal titling to assets 

In the past, LGBT partners were unable to access retirement funds and pensions as heterosexual spouses could have. There are considerable taxation consequences for inheriting an investment vehicle from someone other than a spouse. Now, legally married LGBT spouses can have the proper access to these funds, both while their spouse is living or deceased, via direct rollover rights and the requirement they be named as primary beneficiary unless they sign approving otherwise.

Ability to gift money 

Similarly, spouses can make monetary gifts to one another free of taxation. However, in the past, an LGBT couple would have had to pay gift tax on anything over $14,000 (the current limit as of 2015). If you client wanted to buy their partner a car, for example, that asset would have been subject to the gift tax. Not so anymore. 

Legal visitation rights 

If your client’s spouse is injured, sick, or dying — no matter how serious the situation — and their marriage is not legally recognized, they could potentially be denied visitation rights as well as the rights to be apprised of their condition and/or course of treatment. This is particularly true in the community, where not everyone’s biological family may be on board with the relationship. In states where LGBT people have the right to marry, this will no longer be an issue: The hospital (and, by extension, the family and any courts that get involved) must recognize the marriage and the rights afforded to that marriage. 

U.S. visas for same-sex couples 

As an example, one of your same-sex clients is a Swedish national legally married to a U.S. citizen. The U.S. citizen can sponsor the Swedish national’s permanent residency in the United States. In the past, many LGBT couples would be ripped apart by forced deportation once visas ran out. 

Parental rights/family planning 

Second parent adoptions have undoubtedly been smoothed over by the fact that it’s now easier to get a legal same-sex marriage in many states. In addition, if a couple is recognized as being legally married and one of them bears a child, the second parent is automatically the child’s other parent, and they don’t have to go through the adoption process. (Please note: With the uncertainty in some states and traveling to these states, it is recommended to attain appropriate paperwork, just to be on the safe side.) 

Divorce 

Some of the loudest advocates for legalization of same-sex marriage have been couples who have had a recognized marriage or civil union in one state, only to be unable to dissolve their union in the state in which they actually reside. Additionally, the fact that same-sex couples have not been legally recognized as married means that each individual in the couple does not get the same legal protections during a divorce that a heterosexual couple would have received. 

Divorce can be exceedingly complicated based on where your clients were married and where they reside. Each state’s rules will fall within two categories: divorce in community property states versus divorce in common law states. In a community property state, all assets created during marriage are split 50/50. Anything that they owned or accumulated before they entered into the marriage remains theirs alone, as long as it is not commingled. On the flip side, any debt accumulated by one partner during the marriage is now owned 50/50 by the other partner. In a common law state, each partner is seen as creating his or her own assets unless the assets are specifically put in the name of both spouses. 

There is not a clear answer in many of these cases, and working with a professional such as ourselves will be of upmost importance, especially with the continuous updates in information and how to handle each individual client’s situation.