Protecting Your Loved Ones as an LGBTQ Couple

By Contessa Archuleta on April 23, 2024

Estate Planning Best Practices

In the 2015 landmark civil rights case Obergefell v. Hodges, the U.S. Supreme Court ruled that the Due Process Clause and the Equal Protection Clause of the 14th Amendment guarantee same-sex couples the fundamental right to marry.[i] Eight years have passed since this historic legal and cultural moment; however, the freedom to marry has not yet eliminated all the financial and estate planning hurdles that LGBTQ couples face. Nor does it seem as legally ensconced as it did prior to the U.S. Supreme Court rolling back 50 years of abortion rights last year.

As a member of an LGBTQ couple that wants to protect your family and other loved ones, you have unique considerations. To best safeguard your lifetime goals and legacy, it’s imperative to put plans in place that have legal standing, detail your wishes and designate the people you want to carry them out.

To that end, here are top estate planning and related practices to consider:

1. Look for advisors with relevant experience

While the financial and estate planning environment has improved in recent years for LGBTQ individuals, same-sex couples still face the need for particularly careful planning. The vast majority of estate plans, which are made for opposite-sex couples, don’t have to contemplate the possibility that the marriage might subsequently be invalidated. As such, look for advisors (e.g., financial planners, accountants and attorneys) who have relevant experience, a creative mindset and a supportive attitude to help you navigate hurdles and implement best practices.

2. Pursue adoption or an order of parentage for children who aren’t genetically connected

It is critical to protect your parental rights as a same-sex couple through court orders. Your marital status, or both being named on the birth certificate, is not enough ― particularly in states less likely to support marriage equality. Court orders are backed by the full faith and credit requirement of Article IV, Section I of the Constitution, which obliges state courts to respect the laws and judgments of courts from other states. Many international courts also recognize court orders, which can provide your family protection when traveling abroad.

3. Understand the wealth transfer benefits afforded by marriage

While the decision to marry involves much more than financial considerations, understanding the significant tax and liquidity implications of certain estate planning variables may be an important part of the equation.

For example, one of the most significant financial advantages resulting from Obergefell v. Hodges is the unlimited marital deduction for federal estate and gift taxes, a benefit married heterosexual couples have enjoyed for decades. It allows U.S. citizen spouses to leave an unlimited amount of assets to their surviving spouse without triggering a federal estate tax. Likewise, same-sex spouses can also now roll over assets from their deceased spouse’s retirement accounts to their account without mandatory distributions (and the taxes associated with them), allowing assets to continue growing tax-deferred.

These benefits could have a meaningful impact on your family’s financial situation after you’re gone, so they’re worth evaluating with your advisors.

4. Establish a will

When you think of traditional estate planning, a will is likely the first thing that comes to mind. With a will, you can:

• Identify who will inherit your assets
• Establish guardianship for your children in the event something happens to you and your spouse/partner (nonbiological parents should also consider adoption in the event something happens to the biological parent)
• Arrange for an adult or professional fiduciary (i.e., you can appoint a company skilled in this area) to manage any assets that your children would inherit
• Name an executor — the individual or entity responsible for settling your estate

The absence of a will could trigger your state’s “default” distribution plan, which would likely direct assets to your legal spouse or, if you are unmarried, to your blood heirs (laws vary state by state).

5. Establish a trust in addition to your will

A trust is a legal vehicle in which you can place some or all your assets for your own benefit and/or the benefit of others. While assets controlled by your will generally go through probate, trust assets usually don’t.

Probate involves inventorying and appraising your property, paying debts and taxes, and distributing the remainder of the property according to your will. It can be a lengthy process with extra expenses, to the detriment of your beneficiaries. And in some instances, it can lead to conflict among family members — a scenario to which LGBTQ couples with complex family dynamics may be even more vulnerable.

Other potential benefits of a trust include clearer communication of your wishes after your death, tax savings and privacy. You could also consider adding a clause to your trust (and/or will) that disinherits an heir from receiving your assets if they contest your will, preventing those who may oppose your relationship from bringing a lawsuit.

6. Consider establishing an ethical will

An ethical will is not a binding legal document that transfers assets. Instead, it offers a way to communicate your values, experiences and wisdom. It allows you to explain your intent and wishes that will be executed under your will and/or trust. It also provides you the ability to describe your relationship with your partner so that those who might challenge your will or trust can better understand what’s important to you.

7. Update beneficiary designations

While your will serves as the cornerstone of your estate plan, assets in many types of common accounts — such as retirement (e.g., 401ks and IRAs) and life insurance accounts — pass by beneficiary designation. This means that if you wrote in your will that you want all your assets to pass to your spouse but forgot to update your IRA beneficiary designation, which you established 15 years ago and names your sibling, the IRA assets will go to your sibling. As such, keeping your designated beneficiaries current is also a crucial element of estate planning.  

8. Consider retitling property

If one or both of you owned property (e.g., real estate, land, etc.) before marrying — and if you live in a community property state — you may also want to weigh the benefits of retitling the property into a “tenants in common” property. The main advantage is that the property would receive a step up in cost basis if your spouse passed away and once again upon your passing (i.e., reducing future tax liabilities). However, you should recognize that this also means giving up 50% of the property to your spouse when you die.

Another option in certain states for married couples is “tenants in entirety,” which allows the deceased spouse’s interest in the property to automatically transfer to the surviving spouse while providing some protection from creditors. However, working with an advisor is particularly important here, as some states may define marriage as being between a husband and wife.

9. Prepare advance directives

It’s never too early to consider how you want your financial affairs to be managed if something happens to you and you are not able to exercise control over your finances. One solution is to grant power of attorney (POA) to your partner or spouse, providing them the legal right to make decisions on your behalf.

Additionally, there are several documents related to medical decisions that you should consider preparing with your advisors to clearly communicate your preferences. This is particularly the case if you are unmarried, as without these documents, your partner may have limited or no rights regarding medical decision-making and treatment plans for you, especially if there has been a history of non-acceptance of the relationship by biological family members. And even if you are married, preparing advance directives is still important for minimizing undue stress or family conflict during what will likely already be a very difficult time for your loved ones.

The most important medical directive is a durable power of attorney for health care, which indicates whom you would like to make decisions for you if you are unable. Other directives include DNR (do not resuscitate), DNI (do not intubate) and non-hospital DNRs. And to support any of the directives you provide, consider completing a HIPAA authorization form. It ensures that everyone understands your wishes about who has access to your medical records and can communicate with your providers.

10. Update your estate plan over time

Your circumstances can change in unexpected ways over your lifetime. When changes occur, updating your planning documents may not be top-of-mind, but failing to do so can have significant repercussions, such as leaving your spouse, partner or child without sufficient assets or with a burdensome process to claim your assets at an already extremely stressful time.

For this reason, you should proactively review your estate plan every two to three years to ensure you don’t need to make any changes. What you uncover may surprise you.

Lean on us

We know that the current legal environment has many LGBTQ couples and their families concerned. We also know that, for most of history, estate planning services and boilerplate trust and will provisions were designed for heterosexual marriages and traditional family structures. We are here to support you in addressing both hurdles by helping you with a custom financial and estate plan, referring you to the right attorneys if needed, and supporting you as a trusted advisor and advocate.

Disclosures

The Rikoon Group is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment advisor. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. All information referenced herein is from sources believed to be reliable. The Rikoon Group and Hightower Advisors, LLC have not independently verified the accuracy or completeness of the information contained in this document. The Rikoon Group and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. The Rikoon Group and Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. The Rikoon Group and Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax or legal advice. Clients are urged to consult their tax and/or legal advisor for related questions.

[i] Obergefell et al. v. Hodges, Director, Ohio Department of Health (2015). Supreme Court of the United States. https://www.supremecourt.gov/opinions/14pdf/14-556_3204.pdf. Accessed June 2, 2022.