Nontraditional Couples: Different Planning Needs

Regarding the estate tax, however, it is quite a different story, with gay couples not being entitled to the marital deduction, Wohlgemuth said.

One opportunity here, she explained, is for a partner with a potentially taxable estate to gift $10,000 per year to the partner without a taxable estate and/or to the children, if any, of either or both partners.

Another planning opportunity, she said, is that the annual $10,000 gift limit can be exceeded without tax if it is for payment of medical bills or educational expenses for someone, even if that person is not a relative. In this instance, she cautioned, however, that the checks must be made out directly to the institution providing the education or medical services.

Wohlgemuth also gave some guidance regarding situations where the partners have children. One planning opportunity here, she said, is that if the partners are co-parenting and are in different tax brackets, it is worth calculating who should take the exemptions, deductions and credits.

She advised the audience that even a taxpayer who is not a legal parent but who provides over half of a dependent's support may be entitled to claim any or all of the exemptions, deductions and credits. Here, as in many of the other opportunities she spoke of, Wohlgemuth said that documentation is crucial to support the claim.

Wohlgemuth also enumerated some of the changes in the recently passed tax bill that could impact gays and lesbians. These are the creation of the 10% tax bracket and phased-in lowering of existing brackets; extension and expansion of adoption tax benefits and the dependent-care tax credit; repeal of the estate tax after 2009; and phased-in rate reductions until repeal; and finally, the increase in contribution limits to retirement plans.

Another session at the conference dealt with the emotional challenges of financial planning for same-sex couples.

One of the biggest challenges, agreed both Lauren Komack, a clinical social worker with a private practice in Massachusetts and Peg Downey, a partner in the financial planning firm Money Plans, Silver Springs, Md., is dealing with internalized and externalized homophobia.

Komack said that often in gay clients there is an unacknowleged vein of self-hatred that manifests itself as internalized homophobia. Planners need to be aware, she said, that when such people come for planning advice, they "take the risk of outing themselves."

This internalized homophobia could thus manifest itself as "clients being reluctant to take actions," Downey said, and planners have to work with some sensitivity around it.

Dealing with same-sex couples can mean some unaccustomed soul-searching for planners. Komack said planners "have to check out their own belief systems, personal assumptions, and use and choice of language."

Planners also have to be sure that when they make referrals to other practititioners that they are not homophobic, Komack said.

Another emotional area that may be new for planners is validating "the oppressed experience" of gay clients, said Komack. "When a same-sex couple comes to you, it could be the only place where their relationship is validated," she said. "It is an honor and privilege to do this, as well as a fiduciary responsibility."

She said planners should understand that often "it is assumed by the couple that they are not going to get what they need."

Planners should remember, she said, that same-sex couples have often felt "marginalized and this may be their first attempt to mainstream."

Downey said that when clients complain about all the legal work that has to be done, she says, "'Yes it is a pain that we have to do all these forms, but'"

Trying to understand where same-sex couples are emotionally does not preclude speaking directly, however, if the planner perceives unacknowledged or potentially undesirable undercurrents in the couple's relationship, according to Komack. "If you have something in your gut, you have to put it out there. Be direct."

She said she will often use phrases such as "Is it clear what happens if" or "It is for your protection that I'm bringing this up."

Downey said that she tells clients, 'It's my job to tell you these bad things." But, she added, "you have to make it clear to them that you support the relationship."

Downey said she tells all clients they have to talk about the "3 Ds"–death, disability and divorce. For instance, she will ask the couple, "What happens if one of you becomes disabled?" When the planner finds out their intentions, she said, then advice can be given and arrangements put in writing.

Another way of being direct, Downey said, is asking the couple what they are trying to accomplish if, for instance, one partner is spending lots of money that the other partner is making. She said in cases like this she reminds them about the wisdom of saving for retirement, "but in a nonjudgmental way."

Komack, in conclusion, reminded planners of something universal in the advisory world: "All you can do is give people information; you can't force them to do something."

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 6, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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