Asset Management for Same-Sex Couples
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We can’t say it enough times: it is really important for you to not only know, but also completely accept, that same-sex partners are not treated as a couple in the eyes of the law (in most states). With regard to wealth management, same sex partners are treated as two single people who do not have the same rights and benefits as a married couple.
In fact, there are an estimated 1,138 benefits that we as LGBT couples are not privy to that come automatically to married couples. And that number is only applicable in those states that have a domestic partner benefit; obviously, this number is much higher in those states that do not have same sex relationship recognition. Click here to download a pdf document that lists those legally-denied rights as published by the U.S. Government Accounting Office in 1997.
As a result, same-sex couples pay more than their fair share of taxes for fewer rights. If they share a home and income, they also are denied the basic rights and benefits given to other taxpayers. They can’t file jointly. If a partner dies, the survivor must pay all estate taxes. They pay income taxes on their partner’s health insurance. They pay Social Security taxes all of their lives but receive no survivor benefits when their partner dies. These are just some of the ways they are affected.
Since we all know how seriously Brittany Spears and Kevin Federline or Pamela Anderson and Kid Rock took their vows to “honor, cherish and respect each other till death do you part,” it can be especially frustrating to not have at our disposal the ability to protect those that we love the most.
So, you must plan accordingly. Without a plan, there are high risks, especially with regard to tax benefits, retirement and estate planning, because committed relationships are not recognized under federal law (just ask the recently deceased Rep. Gerry Studds’ partner whether he is going to receive federal survivorship benefits) or the laws of most states.
Even though California, Vermont, Hawaii, Connecticut, New Jersey, Maine and Massachusetts offer some form of domestic partnerships to same sex couples, none of these are recognized under federal law. Also know that these benefits are limited to residents of that state. A family that moves out of these states immediately loses those protections.
With regards to health care issues, you must each sign medical durable power of attorney forms and should have a legal representative draw up contractual paperwork that serves to manage and protect your joint and separate assets. Know also that as LGBT persons we do not have the right to take leave from work under the federal Family and Medical Leave Act to assist our ailing partner, because that law only applies to married couples.
Keep all important records in a safe place and review the implications of asset ownership Is the house in both your names? Are you both listed respectively on each other’s wills and other important legal documents? It cannot be stressed strongly enough how important it is to pay the few hundred dollars for the advice and paperwork preparation of a competent attorney in your state of residence to avoid the nightmare that will most certainly occur if you have no pre-existing contractual agreements when one of you dies.
Understand the impact of tax laws on domestic partners. The next few generations of older LGBT couples will face profound hardship in light of the inequality of survivorship rules. We will see a terrible financial price that aging LGBT widows and widowers will have to pay before true relationship equality is reached. This can be mitigated somewhat by having in place the proper and legally recognized paperwork, although this is not the end-all solution.
When gay or lesbian people grow old and become in need of nursing home care, there is no legal document that can give them the right to Medicaid coverage without causing their partner to be forced from their home – because the federal Medicaid law only permits married spouses to keep their home without becoming ineligible for benefits.
What financial tools would work best for your situation? Consult with your local banker or financial consultant to determine which money management tools are best for you and your partner. Sometimes a trust is best, other times a simple will that has been notarized will work.
Know also that domestic partners are ineligible for Social Security survivorship benefits. This also applies to your partner having to take a lump sum distribution of your 401k plan assets and incurring a heavier tax burden. This is not something that a married spouse is obligated to do upon their spouses’ death.
Make sure that you review the beneficiary designations for your IRA or other savings plans you may have. It is imperative that you designate your partner as a beneficiary, or the assets will likely pass to your estate, and it is not a guarantee that your partner will have any rights to those funds. In fact, they most likely will not be awarded to your partner and will be passed along to blood family relations, even if your partner is estranged from them.
And if you share children, do not forget to plan accordingly for their futures. This includes review of adoption laws in your state with a qualified attorney. If you are the birth parent and you die, you need to decide who will be designated as their guardian; knowing the tax advantages of adoption and head of household credits on tax returns; and managing assets for children through trusts and other financial protection tools, are just a small portion of the very important things that must be managed as LGBT parents.
Ultimately, the decision to make appropriate plans is most likely one of the most important you’ll ever make, either as a couple or as a parent. Do yourself and your loved ones a favor and attend to this today.
Information published on The Rainbow Babies website is not a substitute for proper medical advice, diagnosis, treatment or care. Always seek the advice of a physician or other qualified health providers with any questions you may have regarding a medical condition.
Disclaimer: The Rainbow Babies provides sample contracts and legal/social health articles for informational purposes only—please do not consider it as legally-binding advice of any kind.