Financial planning for the LGBTQ+ community

By Darci Cloutier-Ham | Advice Support Manager

There has been a sea of change in recent years, from merely delivering basic financial products and services to providing advice supported by digital tools and customized solutions. One group that has been underserved by this transition is the LGBTQ+ community. A community that regularly experiences unique challenges, such as an evolving political landscape, the potential for targeted discrimination and a contradictory set of regulations that vary deeply state-by-state.

When starting a family, obtaining competent advice about your situation through a qualified professional — to develop a holistic financial plan to meet your wants and needs — can take a load off. That advice most often involves a financial plan or may just be conveying common guidance. To find out what is best for your situation, we recommend contacting a Citizens Securities Financial Advisor.

The following case studies are two examples of many individuals and couples that we have worked with, representing the very real and complicated needs of the LGBTQ+ community. They outline how advice could help provide the path toward workable solutions.

These are for illustration purposes only and not representative of actual people or outcomes.

Emily and Jessica – Newly married and ready to start a family

Emily (36) and Jessica (28) met through mutual friends. After dating six months, they eloped and now reside in a socially conservative, community-property state.

Prior to marriage, Jessica unexpectedly lost her job. Unable to find new employment, she lived off her savings and experienced some credit issues. Emily is an executive vice president of a large manufacturing company, and her income was their sole support.

The pair dreamed of purchasing a new house and adopting a child, with Jessica planning to remain at home as full-time caregiver. Professional guidance helped identify key elements of their situation, from which a financial plan could be crafted.

A Financial Advisor pointed out how Jessica’s credit rating could impact the couple’s ability to purchase a home. Further, the Advisor noted that by living in a community property state, credit issues could magnify over time and potentially impact them both.

Their Advisor suggested strategies to reduce Jessica’s debts, and structured a comfortable budget to remediate existing and potential credit issues.

The Advisor recommended that Emily and Jessica consider putting protections in place, in the event Jessica’s creditors made a claim against Emily. The Advisor reviewed the couple’s assets for adequate liquidity against future needs and potentially to remove them from possible legal actions.

The Advisor walked Emily and Jessica through their income and estimated cash flows, identifying opportunities to save money and invest more ambitiously. Because the couple are advocates of ESG (environmental, social and governance focused) investing, they wanted to maximize their investments in firms that support human rights and LGBTQ+ issues.

Having reviewed sound financial behaviors, the Advisor then discussed the couple’s desire for starting a family, particularly while living in a state where adoption by a same sex couple could be challenging. The Advisor suggested they meet with an attorney with experience in LGBTQ+ adoption issues to review potential paths forward, discuss the associated costs and seek out additional resources for adoption from LGBTQ+ foundations/organizations.

In tandem with the Advisor’s recommendation to seek legal counsel, Emily and the Advisor reviewed her employer’s family-planning benefits, including their policies on adoption reimbursement and paid leave. Although she hoped to be a full-time, stay-at-home parent, Jessica recognized the financial challenge and became open to going back to work. Additionally, the Advisor suggested they set aside money specifically for childcare, so funds would be available when needed.

The three talked about financial protection in the event Emily, the main bread winner, became unable to work. They discussed potential medical expenses, reviewed Emily’s insurance plans, and learned about Medicare and Social Security disability. They also confirmed Jessica was covered under Emily’s benefits package.

Following completion and implementation of the couple’s new financial plan, the Advisor recommended an annual meeting to monitor progress and make adjustments to their plan, as needed.

Eighteen months later, after allocating assets in accordance with the plan, Emily and Jessica celebrated their first wedding anniversary in their new home. Jessica had accepted a position at a local nonprofit and began contributing to an individual retirement account. The couple decided to pursue adoption and were saving for their child’s future arrival and college education.

Tom and Gary – Preparing to wed for a life together, in retirement and beyond

Tom (66) and Gary (51) were getting ready to marry and recognized their financial situation was not ideal. Both were aware their age difference presented challenges, so they sought guidance from a professional Financial Advisor.

Upon leaving the workplace, Tom had opted for the single-life payout of his pension — giving him higher monthly payments than joint-life — to maintain his pre-retirement lifestyle. Tom had also put aside some savings in a 403(b) plan — mostly in cash. He initially felt his pension and Social Security income would be sufficient, but started to worry about inflation, rising taxes and how the increasing cost of health care might strain the couple’s financial future.

Gary worked 25 years for the same company, but hadn’t ever contributed to its 401(k) plan. He did, however, hold about one million dollars equity in its employee stock option plan (ESOP). Gary was concerned his investment position might be too concentrated and may not provide enough to live comfortably in retirement.

Their Financial Advisor met with the couple to identify gaps and discuss areas for improvement. Because Tom had elected the single-life pension, Gary would not receive survivor benefits. Their Advisor recommended Tom obtain an estimate of his monthly Social Security benefits. This would help determine if his payment would be reduced, based on his pension election. The concern was whether Tom might experience any significant income gaps over time and to find ways to address future needs.

Due to the couples’ age difference and the length of time before Gary’s retirement, the Advisor recommended that they proactively save more to supplement their income in retirement. The Advisor suggested building additional income streams, setting up saving programs and using a portion of their cash to purchase individual life insurance policies with long-term care (LTC) riders. This approach could provide a hedge against rising healthcare and LTC costs and, potentially, tax-free death benefits to a surviving partner.

As part of their discussion, the Advisor educated Gary about the stock market and advised him to contribute to his employer’s 401(k) plan. They discussed diversifying his concentrated ESOP via a Net Unrealized Appreciation (NUA) strategy to save on taxes when Gary eventually took his ESOP distribution. NUA is an IRS provision designed to help mitigate the tax costs on employer-related stock distribution. It was not a strategy that Gary had heard about before. The couple vetted the technique with their tax advisor who agreed the strategy was sound. Gary has since referred several of his colleagues who also participate in the ESOP Program for similar guidance.

Then turning their attention to Tom and Gary’s estate plan, the Financial Advisor suggested that the couple update their beneficiary designations before their wedding. For those accounts in which a beneficiary could not be elected, the Advisor suggested their attorney set up a living trust to capture assets in the event of either person’s medical incapacitation or premature death, as well as healthcare proxies, medical directives, and powers of attorney. The Advisor emphasized the importance of establishing these documents, particularly for the LGBTQ+ community, because in instances of medical emergency, unmarried LGBTQ+ couples may not be afforded “next-of-kin” status. They may even be treated as legal strangers due to a lack of universal legal protections.

The Advisor then reviewed the financial advantages of marriage, including tax deductions, spousal and survivor Social Security benefits, employer health insurance coverage, spousal privileges to inheriting qualified accounts and estate tax exemptions, at both the federal and state levels.

The following spring, Tom and Gary wed and enjoyed an upscale honeymoon thanks to this financial planning. Gary was still working — yet hoped to retire sooner than originally planned—and both he and Tom were looking forward to their next meeting with the Advisor to review progress and remain on track.

In closing …

Citizens Wealth Management supports inclusivity and is committed to the LGBTQ+ community. We aim to build honest and collaborative working relationships by understanding financial situations that may be unique to each individual. Putting our clients' needs together into an actionable plan is not new to Citizens Wealth Management, but based on our clients’ feedback, our advice-centric approach is unique among our competitors.

As they did with Emily, Jessica, Tom, and Gary — a Citizens Wealth Advisor can help you to a find the right path to accumulate, manage, preserve, and ultimately distribute your resources to meet your needs.

Follow the link below to request a call from a Citizens Wealth Advisor to help you build a financial plan suited to your needs.

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