Keeping Your Financial Plan on Track

…even if marriage equality is derailed.

With the recent volatility in the stock market and the uncertainties in the economy, tensions are running high in a number of areas—especially as the rights of women and LGBTQ citizens are also being threatened. 

The impact of overturning marriage equality as a constitutional right would not only impact our personal lives, but would also have a detrimental effect on our current and future financial security. With that in mind, there are some strategies that can be put in place in order to protect yourself and your spouse or partner from potential financial hardship.

Protecting Assets in Any Environment

The LGBTQ community has a lot to celebrate during Pride Month, given how far we have come throughout the years. But, just like everything else in life, there are no guarantees that civil-rights laws will remain the same forever. 

Given the potential threat to marriage equality, there are some legal and financial strategies you should consider putting in place sooner rather than later, in order to build a wall of protection around key items like owning and transferring assets, planning for death or disability, and making medical decisions if you or your partner become incapacitated.

Key areas to focus on should include the proper titling of property and assets, the creation and implementation of medical and financial powers of attorney, and establishing various types of trusts, if necessary. 

Account Titling – When an individual who is legally married dies, his or her assets will typically transfer directly to their surviving spouse free of income and estate taxation. But the same is not true for non-spouse beneficiaries and recipients.

Looking ahead to the possibility of marriage equality ending, it is essential to take precautions to protect what you have worked so hard to accumulate. One strategy is asset titling.

The way that you have property and assets titled can make a big difference in terms of what happens to them upon your passing. The most common forms of asset ownership are Individual, Tenancy in Common, and Joint Tenancy with Right of Survivorship.

In the case of Individual ownership, one person or entity owns the asset or account. Upon your death, these will generally pass according to the terms of your will or trust, provided that you have either or both of these set up.

Without a will or beneficiary designation, it is possible that your individual assets could pass to your next of kin—parents, siblings, or other “blood relatives”—if you and your partner are not considered a legally married couple. Therefore, having assets titled in your name only could leave your partner in a difficult financial position, and vice versa.

It is important to note that accounts that have beneficiary designations—such as IRAs, retirement plans, and life insurance policies—will typically pass directly to the intended recipient. This is the case even if you have a will in place, as beneficiary designations can override a will and can also bypass the costly and time-consuming probate process.

In the case of Tenancy in Common, while the account holders are alive, the assets are owned in proportion to what each person contributed to the total. When you die, your interest will pass to whomever you have indicated in your will (if applicable) or to your heirs, as dictated by law. So this is another case where you should have a good understanding of what will happen upon your passing, as it may not be what you had intended.

This is why many people instead use Joint Tenancy with Right of Survivorship for the titling of assets if they want property and/or funds to pass directly to another individual (or individuals) upon their death.

With this form of titling, when one of the account holders dies, the assets will pass directly to the surviving account holder(s), regardless of what is stated in their will, as well as whether or not they are legally married spouses. 

Powers of Attorney – Another important area of concern (particularly if your marriage might not be legally recognized in the future) is to have powers of attorney for both finance and health care in place.

A financial power of attorney is a legal document that lets you appoint someone to manage your finances and property for you. These tasks could include paying bills, making deposits and withdrawals from a bank account, and overseeing transactions in your investment account(s).

A medical power of attorney is also a legal document that names an individual as your healthcare “agent,” meaning that the person has the ability to make healthcare decisions for you if you are not able to do so yourself. He or she is also responsible for ensuring that doctors and other medical personnel provide necessary and appropriate care according to your wishes.

The Use of Trust(s) – In some cases, just simply having a will or beneficiary designation isn’t enough to keep property and money safe from taxes, as well as from creditors or financial predators such as friends and relatives other than spouses who are not typically given special considerations in estate-planning matters.

One example of this pertains to the taxes that may be due when assets pass to an individual who is not your spouse. Depending on the situation, what the recipient actually receives after taxes are paid could be significantly less.

Trusts can provide you with more control over what happens with various assets. They allow you to communicate where you want assets to go, along with how they are managed in the future and the circumstances regarding when and how funds and property are distributed.

It’s Never Too Soon

Even if you are not currently married or in a domestic partnership, knowing that your wishes are in place—along with a proper plan to carry them out—is an essential component of building a solid financial and retirement plan.  

If you and your spouse or partner don’t have these protections in place yet, it is never “too soon” to act. Likewise, it is possible that various financial, legal, and tax rulings have changed that could render your current financial or retirement strategies outdated and ineffective. Therefore, talking over your wishes with a financial professional who is also well-versed in the planning needs of the LGBTQ community is recommended.

 This article appears in the June 2022 edition of OutSmart magazine.


Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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