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Estate Planning for LGBT Couples

Avoid the common pitfalls and take these 5 smart steps toward a secure financial future.

3. Potential Pitfall: If you died today, are you certain that your partner or spouse would receive your 401(k), IRA or life insurance proceeds? Or is a named beneficiary outdated — perhaps some former partner? Assets that have beneficiary designations, such as retirement plans and life insurance, do not follow the directions of your will. Instead, when you die, whoever is the beneficiary of record receives the proceeds, regardless of what is written in your will.

Smart Step: Review your beneficiary designations for all your assets. Specifically review your elections for IRAs, 401(k) accounts and life insurance policies. In addition, change financial accounts that do not typically have beneficiary elections — such as certificates of deposit, savings, investment and checking accounts — to "payable on death" accounts, also known as Totten Trusts. Doing so bypasses the dictates of your will, and the assets will be quickly paid directly to the beneficiary upon receipt of a death certificate. For the surviving partner, access to ready cash for living expenses can be critical. Assets without a beneficiary designation must go through the delays and expenses of probate (the legal process by which a deceased person's final affairs are settled). Adding a beneficiary also reduces the possibility that someone could override your wishes, since it generally cannot be contested.

4. Potential Pitfall: According to MetLife's "Still Out, Still Aging" study, the majority of lesbian, gay, bisexual and transgender boomers (57 percent of the surveyed participants) are relying on Medicare to pay for their personal long-term care needs, even though neither Medicare nor health insurance benefits typically cover long-term care costs. Would the prospect of your or your partner's prolonged illness leave your finances or housing vulnerable?

Smart Step: Evaluate your need for long-term care insurance. While Medicaid rules vary by state, they usually require someone 65 or older to spend down their assets for care until he or she can qualify. Because heterosexual married couples may file a claim as a couple, they are able to avoid the healthy spouse's becoming impoverished due to the other spouse's need for long-term care. Depending on whether your state recognizes same-sex marriages, someone in a same-sex union may be forced to apply as an individual, regardless of marital status. As a result, a prolonged illness requiring Medicaid could necessitate the spending down of joint financial accounts or the selling of a jointly owned home. To avoid that hardship, speak to a long-term care insurance agent in your state to learn about your options. Policies come in different types, from covering just the basics to high-end policies that cover everything, including home health care. Most long-term care insurance companies now even offer discounts for same-sex partners.

5. Potential Pitfall: What if one of you becomes seriously ill? Do you have the legal authority to care for your partner? What medical and end-of-life decisions do you wish to have made on your behalf?

Smart Step: Get your end-of-life documents in order. Because the laws are different in every state, speak with an attorney in your state who has experience working with same-sex couples. Caring Connections, a program of the National Hospice and Palliative Care Organization, provides free resources and information to help people make decisions about end-of-life care and services before a crisis occurs. AARP also provides free advance directive forms and instructions for each state.

Joseph Kapp and Nicholas Burkholder, who specialize in gay and lesbian financial and estate planning, co-own a financial-planning practice in the Washington, D.C., area. They have co-authored numerous articles, including for the Journal of Financial Planning, and have been columnists for The Advocate.

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