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Rainbow
Warriors LGBT clients need help protecting their finances from a blitz of varying
state laws By Olivia Mellan, and Sherry Christie “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:
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.” Added Hatfield Charles of Financial-360, who serves on the
PridePlanners board, “Although I need to glean information about my clients’
health status, I wouldn't ask, ‘Do you have AIDS?’ I might say, ‘Do you have
any health issues I should know about?’ If you speak in a culturally
sensitive manner, having conversations slowly and explaining why you need to
know, you will create trust and more receptivity.” Womoney's Rich feels that LGBT clients are generally less
stressed out about their situation. “Ten years ago, gay clients may have been
more closeted and worried about families of origin challenging their estate
plans,” she said. “I think that's less so these days. As a lesbian, I don't
discriminate on the basis of sexual orientation, one way or the other. I use
humor with everybody.” You Don’t Need to Be Gay
Russ Weiss, a planner at Marshall Financial Group in
Doylestown, Pennsylvania, who has the Accredited Domestic Partnership Advisor
designation from the College for Financial Planning, in addition to being a
CFP, is a member of the board of PridePlanners, but he isn't gay. His client
niche is nontraditional families, especially unmarried couples living
together. When he began his career, Weiss told us, the challenges and
advantages of planning for unmarried couples were front-of-mind because he
and his girlfriend were then living together. Since central Bucks County,
where he grew up and now works, has a large LGBT community, gay and lesbian
couples naturally became part of his clientele. In his experience, sexual orientation is much less important
to clients choosing an advisor than other factors such as area of financial
specialization, pricing, style or social interests. “When a lesbian couple
recently came to us, we asked why they chose our firm,” he said. “They were
interested in retirement planning, and they liked the fact that we were
fee-only.” In general, Weiss said, “Lesbian, gay, bisexual and
transgendered couples want advisors who are sensitive to LGBT concerns or at
least sensitive to their culture, but they have the same concerns as straight
couples. ‘Do we have enough money to retire? If we have kids, are we
providing well for them?’ I think that if you’re a planner who's objective
and empathetic with your clients and who focuses on what's important to them,
it doesn't matter whether you’re gay or straight.” What About the Kids?
Same-sex couples with children tend to want an advisor who
will treat their financial needs no differently than those of any other
family, according to Allianz's “LoveFamilyMoney”
survey. “Having a child takes precedence over everything else,” agreed
ChFC program director Lemoine.
“Gay and straight couples are very similar in that regard. In fact, a gay
couple with a three-year-old has more in common with a straight couple with a
three-year-old than they do with a gay couple
without children.” But Rich pointed out one crucially different aspect of
same-sex couples’ planning: knowing who is—and who isn't—legally a parent.
“We’re working with a couple now who have two children in their household,” she
said. “The older child, a boy, was born to one of the partners during a prior
relationship. This partner is also the birth mother of the younger child,
whom the other partner has adopted. “Now they’re breaking up. The boy's legal parent makes only
about a tenth as much as the other partner, who is not legally his parent.
The non-legal parent had orally promised to pay all college costs, and has
paid through the first year. But now they’ve broken up and there's a $30,000
bill due next month. Who's paying it? The non-legal parent says, ‘I’d love to
help, but I’m not sure I’m able to now that we’re breaking up.’ And she has
no legal duty to support him, even though he's been in their household for 15
years.” Failing to plan for the kids can lead to even more
heartbreaking scenarios. Another true story: After breaking up with her
long-time partner, the biological parent of a little girl denied her ex
further contact with the child. The ex went to court repeatedly in hopes of
regaining access, but since the couple had not been married before the
child's birth and the non-parental partner had not adopted her, there was no
legal way to protect the relationship between the now ex-partner and the
child she loved. “In order to do a good plan, you need to know the legal
relationships,” Rich cautioned. “Don't presume that a person who appears to
be a parent is a legal parent.” Dissolution
Attorney Hertz recently asked his financial planner to help
him develop a strategy that would work in either of two possible scenarios:
first, if he and his partner of 32 years stayed together; and second, if he
became single. Hertz's partner went through the same process. “Our plan is
for each of us to feel financially secure and self-sufficient, regardless of
what happens in our relationship,” Hertz explained. (Despite their stable
union, they elected not to marry because of the expense of altering plans
made before California legalized same-sex marriage.) Similarly, he tells clients that their financial
self-sufficiency is one of the biggest gifts they can give their partner.
That often leads to one of the hardest things an LGBT couple's advisor needs
to do, which is to enable them to envision their death or the dissolution of
the relationship. “If all the retirement assets are in one partner's name and
they aren't married, then the other one has no retirement plan unless there's
a written agreement,” he pointed out. “You have to have the courage to speak
that truth. And then you have to be able to shape the financial plan in a way
that's consistent with reality for those clients.” Hertz has found that gay male couples tend to keep their money
separate, allowing the higher earner to have control over his earnings.
Getting married can be disruptive for that couple, since it imposes a sharing
that is contrary to how they think. By contrast, lesbian couples may tend to overly share in order
to quiet the dissonance caused by economic inequality. “One of the reason why
lesbian breakups are so often contentious is what I call ‘regretted
generosity,’” he said. “Men are less generous, and therefore have less to
regret. Since they never shared all that much, they tend to have simpler
breakups.” Marshall Financial Group's Weiss noted, “In a divorce, you can
make a claim to assets. Two gay people living together unmarried, they’re
legal strangers unless they’re protected by legal documents. Unless they have
a domestic partnership agreement or cohabitation agreement in place, the
lower earner isn't protected in any way if they break up. Say an unmarried
couple lives together in a house for 15 years, but only one person is on the
deed. If they break up, the person who's not on the deed has no claim to the
house, even if he or she paid part of the cost of living there.” Reaching Out
Although the LGBT market may seem appealing, Financial-360's
Hatfield Charles cautions advisors against rushing into it believing they’re
experts. “A common mistake for planners who want to break into this market is
that they go to a few seminars, they hear people like me, Stuart Armstrong or
Fred Hertz speak, they meet with a gay or lesbian couple, and they start
spewing off all the planning strategies the couple needs to take care of
without listening long enough to identify their real needs and concerns,” he
said. “So the couple gets overwhelmed and bolts and never comes back; or they
miss an important detail that they never asked about and start going down the
wrong path.” An advisor is likely to have more success by actively
maintaining relationships with allied financial professionals who serve the
LGBT community, as Armstrong of Centinel Financial
Group does. Armstrong has the added advantage of long experience with this
demographic group. He told us, “I’ve been committed to serving the LGBT
community throughout my career—creating and presenting over 30 financial
awareness workshops in the ‘80s and ‘90s during the height of the AIDS
epidemic, when people were craving guidance and fearing for their financial
and physical lives.” This experience has led many new clients to seek him
out. “They just feel more comfortable working with a financial advisor who's
gay,” Armstrong said. “They don't have to be concerned about whether they’ll
be treated with sensitivity and respect.” Marshall Financial Group's Weiss is also committed to
networking with other advisors outside the financial planning profession,
such as tax professionals, lawyers and travel agents. In addition, he
conducts interviews and writes articles on financial planning for unmarried
LGBT couples. Most of his new clients come through referrals from existing
clients. Hatfield Charles has found that after his two decades of
working with LGBT clients, prospects are drawn in by word of mouth. “Many
people want to work with people like themselves who understand them,” he
said. “They know that I’m gay and I’m married. Once I start working with
them, we develop a very close relationship. Many of my clients have been to
my house for dinner. It's an ongoing joke when they tell me they like my
husband, Dixon, even better than they like me.” On a more serious note, he added, “We prefer to have fewer
clients and deeper, more intricate relationships. If they have a CPA and an
estate planner, we’ll work with those professionals to develop a team that
serves the client best.” If they don't already have an estate attorney and a
tax professional, Hatfield Charles calls on specialists within his network. “Because the challenges, obstacles and opportunities for the
LGBT community are so different, we try to make sure that all planning
aspects work in concert,” he said. “Clients want to work with us because they
don't have to meet five different times with three different experts. We get
all these experts together, so it's a much simpler and more efficient process
for the client.” Looking for Help
“Marriage equality has changed in many states this past year,
and yet things are still very confusing,” said Margaret Archer, a vice
president and portfolio manager at Wells Fargo Advisors in Atlanta. “We as
advisors need to be more thoughtful in addressing the planning challenges
that the LGBT community continues to encounter.” “Clearly each of us brings our own personal experiences and
our own biases to the financial planning process,” Womoney's Rich agreed.
“It's important to explore with clients what their assumptions and biases
are, and respect them. But I think my gay and lesbian clients share a lot of
the same goals with my straight clients. Our job is to help them reach those
goals, so we need to let them know about a broader landscape of options they
might not have considered.” “There's great opportunity for advisors, and these are great
people to work with,” Weiss said. “They tend to be happy, positive adults,
comfortable with who they are. And there's a lot of value you can add to
their situation, because the laws don't look out for their best interests.” As for those who aren't yet working with advisors: “I think
they are looking for help,” Weiss said. “They just don't know who to go to.
If more advisors let it be known that they’re sensitive to the culture, this
group of clients will grow over time.” |