Planning for the LGBTQ+ family
Navigating a complex legal and economic landscape
While many same-sex couples have married since the United States Supreme Court 2015 ruling in favor of same-sex marriage, Obergefell v. Hodges, many couples have opted to continue living together unmarried.1 Additionally, many same sex couples are raising children.2 Whether married or not, planning is key for LGBTQ+ couples looking to navigate a complex legal and economic landscape and ensure each partner’s wishes are addressed.3
Marriage comes with both benefits and drawbacks for LGBTQ+ couples. Whether you choose to marry or remain unmarried, planning is critical to ensure that you and your partner’s wishes are addressed around healthcare, estate planning and other important decisions. If you have or want to have children, the landscape is even more complex.
Marriage benefits
Since Obergefell v. Hodges, same-sex couples can enjoy many of the benefits of marriage, including:
Marriage drawbacks
While there are numerous personal and economic benefits to marriage, there are a number of potential drawbacks, including:
Income tax marriage penalty
Two married high earners may end up paying more federal income tax than they might have if they remained unmarried.
Debts
State laws differ, but marriage often entails subjecting one spouse to the debts and credit history of the other spouse.
Tax status of certain trusts
Prior to the legalization of same-sex marriage, many LGBTQ+ couples set up trusts for their unmarried partners or named their unmarried partner as a trustee of a trust. Getting married after such transactions may create unwanted consequences in those trust documents.
Essential planning questions
Essential planning questions
For LGBTQ+ couples and families, important estate planning questions include:
- To whom—or to what—do I want my wealth to go?
- How much of it?
- In what form—outright or in trust?
- Who will speak for us if we become incapacitated and can’t communicate our wishes?
Estate planning for LGBTQ+ couples post-Obergefell
Despite the Supreme Court’s ruling, LGBTQ+ couples that continued in a domestic partnership or civil union and did not obtain a marriage license are essentially treated as unmarried partners for purposes of federal tax law.5 This can sometimes lead to disastrous federal tax consequences.
For example, consider an unmarried couple where one partner earns income for the whole family. If the earning partner purchases a home and titles it in the joint name of the couple, this could be deemed a taxable gift to the non-earning partner—which could require the earning partner to file a gift tax return, using their lifetime exemption amount and possibly paying a gift tax. Registered domestic partners and those who entered a civil union will face the same potential calamity.
Planning tips
An estate plan is essential to ensure that each partner is provided for. Other critical documents for same-sex couples include:
- properly executed health care directive - can designate each partner as the person the other partner wants making health care decisions for them in the event one becomes incapacitated.
- power of attorney - can allow one partner to continue to execute financial documents, make rental or mortgage payments, and open and close accounts in the event one partner is not able to.
Dive deeper
For more information about planning strategies for LGBTQ+ couples and families, see our publication, Planning for LGBTQ+ families. Connect with a ۶Ƶ Financial Advisor to understand how planning can help address your particular needs.
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