June 27, 2022, 11:07 a.m. EDT

What LGBTQ couples need to know about retirement and estate planning – whether married or not

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By Alessandra Malito

Not all committed couples intend to walk down the aisle to say “I do,” but LGBTQ partners will need extra retirement and estate planning to ensure a secure old age – and protect each other thereafter if they choose not to marry. 

June 26 marked the seventh anniversary of the landmark Supreme Court Obergefell v. Hodges decision to legalize same-sex marriage, but many LGBTQ couples have decided not to make their union federally legal. In those instances, committed couples must take a few extra steps so that their assets and any children are taken care of as they would have wanted. 

“Same-sex couples not married don’t have the protection and legal and tax advantages of marriage,” said Sharon Klein, president of family wealth in the eastern U.S. region for Wilmington Trust. 

Less than 1% of Americans are married to a same-sex spouse, according to a 2021 Gallup report . The number of same-sex marriages increased immediately after the 2015 decision, but has leveled off since then. In the six months before Obergefell v. Hodges, 7.9% of LGBT adults were in same-sex marriages. In the first year after the Supreme Court decision, that figure jumped to 9.6% and has hovered around that percentage ever since. 

Here are a few steps unmarried same-sex couples should take now to protect their loved ones and their savings: 

Create wills and medical directives 

All committed couples in it for the long haul – married or not, LGBTQ or non-LGBTQ – should create legal documents that list their end-of-life and after-life wishes. 

A will can dictate where assets go, as well as who will take care of any children. Dying without a will can create a nightmare situation for a same-sex family – without this document, states dictate the order of priority for asset distributions, as well as who will become caregiver to a child. The order of priority could be siblings or other family members ahead of the deceased’s significant other, even if they were estranged from the person who died.  

Medical documents, such as advance directives like a power of attorney and healthcare proxy, are also important, as they will provide authorization to make decisions in the event of incapacity. 

Although there are software programs to draft these documents, individuals should consider working with an attorney familiar with their state’s laws, as not all handwritten or program-generated documents will stand up in court. 

Of course, these rules apply to any couple. Some same-sex couples may find themselves in difficult and emotionally-charged situations, such as if they have biological family members who will fight their last wishes after they’re gone. “That means in the event someone becomes incapacitated or dies, the families may be more likely to take over the financial and medical decision-making,” Klein said. In the worst of situations, families may contest wills and try to take over the caregiving for children, especially if they were biologically related to the partner who passed away. 

Same-sex couples may choose to go through second-parent adoption so that the non-biological parent is legally recognized as the parent in the event of the biological parent’s death, said Joseph Stemmle, a certified financial planner at Riverstone Wealth Advisory Group and one of the leaders of the FPA PridePlanners Knowledge Circle Group, a group of 150 people in the LGBTQ and financial planning communities. 

Consider trusts 

A revocable living trust can take the place of the will, and depending on how it’s structured, kick in before death, such as in the event of incapacitation, Klein said. Revocable trusts can be changed, but will become irrevocable upon death. Unlike wills, trusts cannot be contested by others – such as siblings who think they deserve more of one’s assets than a significant other left behind.  

Wills are public domain, but trusts are not, making them a favorable choice for couples who want to keep their decisions private. 

Trusts can also act as vehicles for asset distribution. Married couples can pass an unlimited amount of assets to one another without triggering a gift or estate tax, but unmarried couples face restrictions. Unmarried individuals may want to consult with financial and legal professionals to find trusts that will allow them to pass their savings and possessions on to their loved ones in the most tax-advantageous manner, and in the way in which they see fit. 

Review beneficiaries 

Certain assets can pass without the need for a will and without going through probate, such as those that name beneficiaries like retirement accounts and life insurance policies. 

But individuals should be careful even with those – they’re easy to forget, and they take precedent over a will, which means whoever is listed as beneficiary will get those assets. “Divorce often acts as a legal trigger to review all of your documents,” Klein said. “Before same-sex marriage was legalized, they may have just split up with no divorce, so they’re less likely to have that formal legal trigger to remind them to review their designations. It is particularly important for same-sex couples to be cognizant of that.” 

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