Tom Fridrich, Senior Wealth Planner
Financial planning for the LGBTQ+ community requires both more sensitivity and additional practical analysis that their straight counterparts do not have to consider.
As financial advisors, it is our job to be aware of these unique challenges, build fitting solutions into their plans and make sure they feel welcome, heard and understood in our offices.
Gender identity and sexual preference have historically been a basis of discrimination, and it’s only in recent years that members of the LGBTQ+ community have begun to receive legal protections against discrimination.
In 2003, Massachusetts became the first state to legalize same-sex marriage via a court ruling, which led to a domino effect of other state courts striking down bans on same-sex marriage.
The Defense of Marriage Act – which defined marriage as being between a man and a woman – was ruled unconstitutional in 2013 by the U.S. Supreme Court, and two years later, the Supreme Court’s ruling in Obergefell v. Hodges made same-sex marriage legal across the country.
Though LGBTQ+ individuals are now afforded protections from discrimination and enjoy the right to marry, you should be aware of some special LGBTQ+ financial planning considerations when meeting with clients.
How to Start the Conversation with LGBTQ+ Clients
How do you make sure LGBTQ+ clients feel welcome in your office and when they might first encounter your firm – online and on social media?
As with every client, start by being respectful to and understanding of everyone who walks through your door. One way to do this is by acknowledging that many LGBTQ+ individuals use pronouns other than he/him or she/her.
Listing your pronouns in the bio on your website or social media accounts and in your email signature can indicate to LGBTQ+ prospects that your office is inclusive. You can also ask new clients what their pronouns are when you first meet them and highlight that in your notes, so you don’t forget. These small gestures can go a long way toward making LGBTQ+ clients feel comfortable working with you and your firm.
Think through the client experience your technology and intake process offers LGBTQ+ clients. Include a field to enter pronouns in paperwork or your CRM software. If your CRM software or paper forms don’t allow for gender entries beyond “male” and “female,” consider making that information optional. And use gender-neutral terms on your website forms and paperwork where possible – for example, “spouse” or “partner” instead of husband or wife, or “child” instead of son or daughter.
If you offer your services through the CFP Board website, you can list “LGBTQ+” as a client focus to signal that you’re open to and familiar with LGBTQ+ financial planning needs.
There are also sensitive issues that you may need to think through when working with LGBTQ+ clients who have transitioned from the gender they were assigned at birth or who do not go by their birth name. In the course of planning, there may be instances in which you need to reference the client’s “dead” name, especially if the client hasn’t legally changed their name yet, so be sure to ask how their name may be listed on documents.
Read More: How to Harness the Power of Acknowledgement
Not all of these issues will arise when working with LGBTQ+ clients, but being prepared can help you navigate them with care and sensitivity when they do.
LGBTQ+ Financial Planning, Risk Management and Estate Planning
Even today, LGBTQ+ individuals are not always accepted within their families, so people might keep their gender or sexual identity a secret from their loved ones. That can complicate planning when you consider how central relationships are to people’s goals and wishes for their future.
And because LGBTQ+ couples couldn’t marry in many states until 2015, some long-term couples who recently married may have more complex financial situations than younger couples.
Because of all this, financial planning for LGBTQ+ couples can differ greatly in a few key areas.
Though same-sex marriage is legal in all 50 states, some LGBTQ+ couples may still choose not to get married. The Williams Institute at the UCLA School of Law estimates that there are more than 700,000 cohabitating same-sex couples in the U.S., and only about half are married. This could be for family reasons, financial reasons or personal preference.
Though the financial benefits of marriage (eligibility for each other’s benefits at work, eligibility for spousal Social Security, unlimited gifting, etc.) should be part of the discussion with all unmarried couples, ultimately, your focus should be on helping your clients craft the best financial plan for their situation.
Some older LGBTQ+ couples may have individually accrued significant amounts of money in retirement accounts, investment portfolios or other investments before they could legally marry, which could complicate their situation. Make sure when meeting with these clients that you’re prepared to cover the benefits and drawbacks of combining finances with their spouse.
And, naturally, with the right to marry comes the ability to get divorced. Consequently, getting married and comingling assets could result in a division of assets that would not have occurred if the couple did not marry.
Read More: Gratitude as a Foundation for Creating a More Equitable and Inclusive Business
Shared Business or Financial Interests
Married or unmarried, LGBTQ+ clients may have concerns that a family member with whom they share financial interests may attempt to block their partner or dependent from inheriting those assets. Though some steps can be taken to mitigate this through careful, intentional planning, ultimately, if somebody does not want to leave assets to a child or grandchild because of their sexual orientation, there is little that can be done.
For clients wishing to pass on their assets, make sure that their will and life insurance policy clearly identify beneficiaries, as they may not be married to their partner or the legal parent of their child. Depending on the state they live in, their assets may not automatically pass to those parties at death without proper planning. And depending on their situation, your clients might be better served exploring a trust as a way to pass wealth to any dependents.
A trust can be very specific on how assets are inherited, including delaying when your loved one receives their inheritance. And, maybe most importantly, the trust is a private document, so the details of how your estate is distributed is not a matter of public record.
Likewise, any documents granting power of attorney or health directives should be similarly detailed because, as with a will, their partner or child may have difficulty obtaining that power in the event of an emergency. For instance, during a health care emergency, if a valid power of attorney is not in place, a client’s parents and their partner or dependent may each try to obtain that power if the proper documents haven’t been prepared in advance.
Depending on state law, both members of an LGBTQ+ couple may not be considered legal parents of a child they are raising together. This is more of a legal matter than a financial one, but it’s still important as an advisor to know the specific relationships between LGBTQ+ partners and their dependents.
Additionally, LGBTQ+ couples may need to explore alternative ways to have children, whether through adoption or surrogacy. This can be an added expense you can help them plan for; for example, couples who pursue surrogacy may be able to tap into a health savings account to help cover the expense. When you add these costs on to the costs of raising children in today’s world the financial challenge only gets larger for LGBTQ+ couples.
If clients who have transitioned from the gender they were assigned at birth choose to include life insurance in their planning, they may be asked about their gender at birth when applying. This is because some – though not all – insurance companies determine mortality rates with actuarial tables based on a person’s gender assigned at birth. Proactively communicate this possibility with your clients so they’re not caught off guard.
Make clients aware that they can invest in LGBTQ+-friendly companies if that’s part of their interests and values. The Human Rights Campaign releases an annual Corporate Responsibility Index that tracks LGBTQ+ inclusivity at Fortune 500 and other participating companies.
Preparation is Key
Every client’s situation is unique, and knowing and being prepared to handle the financial planning needs of LGBTQ+ clients can help you better serve them when they walk through your doors. And though you can’t be prepared for every situation you may face, you can be ready and willing to treat each of your clients with respect and sensitivity regardless of their background.
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