Planning for the Unforeseen

Protect your assets and your loved ones with a few key strategies.

No matter how much we plan and prepare, there may be something that we didn’t think about or that we missed. Some of these things can be critical and cause unintended consequences in our lives when unexpected changes happen. An illness or sudden death of a loved one may cause financial challenges. This makes it crucial to be prepared. 

Things to Consider

Financial emergencies can happen to anyone at any time. It is a good idea for both parties in a relationship to be aware of the financial status of the household at all times. This is especially important for the person who doesn’t routinely handle the finances. Here are some things to look out for:

Auto PaysAny bills that are automatically paid must be reviewed on a regular basis, especially if something untoward happens to the person who mainly runs the household finances. Otherwise, it could have devastating consequences. For example, in 2022, a widow in Kentucky was forced to file for bankruptcy following her husband’s sudden death to save her home after his bank account was frozen, stopping mortgage payments and triggering foreclosure. The woman was unaware that the automatic payments on the mortgage had stopped until she received a letter stating that the home would be auctioned off, even though her finances were otherwise very healthy.

For the LGBTQ community, this can be especially important. Consider a same-sex couple where one partner handles all the finances. If something happens to that partner, the other partner might face similar issues, especially if they are not married.

Proper Asset TitlingThe way assets are titled can make a big difference in what happens to them upon the passing of a loved one. A strategy often left unexecuted involves titling, particularly when one spouse is ill or in hospice and not expected to live much longer. The initial knee-jerk reaction is to move assets out of the ailing person’s name and into the healthy partner’s individual name so that they will have access to funds later during the estate settlement process. While this makes sense for a portion of the assets that need to be liquid for day-to-day operations, if there is a situation where there is a joint account with highly appreciated holdings, one may consider moving those securities into the ailing spouse’s single name. This is because in a joint account, when one person passes away only half of the account will receive a step-up in basis, whereas in an individually named account, the entire account will receive a step-up in basis. This would be beneficial to the surviving spouse later, as it is a tax-efficient strategy.

For LGBTQ couples, proper asset titling is even more critical due to varying recognition of relationships. Ensuring assets are correctly titled can prevent legal challenges and help in a smoother transition of assets.

Income ReplacementMaking sure that life insurance and/or other income-replacement strategies are in place is essential so survivors don’t have to change their lives if income drops. This is particularly important for surviving retirees who may lose a deceased spouse’s pension and Social Security benefits. Relying only on life insurance through your employer can result in lost coverage when you leave your job or retire. Therefore, having an individual life insurance policy that is privately owned is recommended. It would be a good idea to look into this sooner rather than later, as the cost of insurance increases due to age and health.

This is vital for LGBTQ individuals. Having an individual life insurance policy can help ensure that the surviving partner is financially secure, regardless of potential legal hurdles.

CommunicationSpouses should also be aware of where important documents like insurance policies and loan paperwork are kept, as well as contact information for key advisors. And let’s not forget passwords. With the increasing number of accounts and services that are managed online, ensuring that your partner has access to these accounts is crucial.

Clear communication is paramount for LGBTQ individuals. In some cases, families of origin may not be supportive, making it even more critical that partners have access to all necessary information and documents to avoid complications.

Starting the Planning Process

Do you have a plan to protect yourself and loved ones from financial challenges in case of the unexpected? If not, a financial-planning professional can walk you through various scenarios and create strategies based on your particular objectives.

For LGBTQ individuals and couples, finding a financial planner who is also knowledgeable about the unique challenges faced by the community can be particularly beneficial. Organizations like the National LGBT Chamber of Commerce (NGLCC), the Financial Planning Association (FPA) and the CFP® Board can help connect you with LGBTQ-friendly financial planners.

Hoping for the best while planning for the worst is a prudent approach to financial stability and peace of mind. By considering the unique challenges that can arise, especially within the LGBTQ community, and taking proactive steps to address them, you can help protect yourself and your loved ones from unforeseen financial difficulties. Whether it’s through proper asset titling, income replacement strategies, or ensuring clear communication and documentation, careful planning can make a significant difference in navigating life’s unexpected challenges.

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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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