PNC CENTER FOR FINANCIAL INSIGHT

Transcription

1 PNC CENTER FOR FINANCIAL INSIGHT PNC Center for Financial Insight SM builds bridges from thought to action, creating practical, applicable strategies to help benefit you and your family. Contributing Author: Patrick E. Beaudry, CPA, CFA Senior Resident Celebrate Pride Month by Exercising Your Financial Rights Learn how to plan for your financial future while addressing needs unique to those in the lesbian, gay, bisexual, transgender, and queer (LGBTQ) community. Pride month, which is celebrated in June each year, is the perfect time for members of the LGBTQ community to make sure they are aware of their financial rights and are taking advantage of them. Since the advent of marriage equality in 2015, much has changed in terms of awareness of the unique needs of the LGBTQ community, services offered, and legal rights. However, members of the LGBTQ community are far less engaged in planning for their financial futures. In fact, a recent survey indicated that only 29% of individuals who identify as LGBTQ work with a financial professional, compared with almost 40% of the general population. 1 The lack of planning may be due to a fear of reprisal from employers, the fact that there were limited planning options for LGBTQ couples prior to marriage equality, and the perception that advisors lack an understanding of LGBTQ issues, says Andrew Thomas, president of the Cleveland PNC Proud Employee Business Resource Group (EBRG), which provides information, networking, and education on issues important to the LGBTQ community. Having a plan and sticking with it is the surest way to meet your financial goals, Thomas counsels, adding, Working with an advisor who respects you and understands LGBTQ issues can make all the difference when it comes to creating your plan. Whether you are married, unmarried and in a long-term relationship, or single, wealth planning will help you determine if you will have the assets you need to take care of yourself and your loved ones. And, there is much work to be done. Less than 20% of individuals who identify as LGBTQ have a will or a simple estate plan, according to the survey. Here are some steps which address the unique needs of the LGBTQ community to help you plan your financial future. Safeguarding Your Wishes It is particularly important for unmarried LGBTQ couples to have a will. A will is a foundational planning document that outlines who is to receive your assets after your death. Unmarried partners do not have any intrinsic rights to the assets of their partners upon their deaths in the majority of states. 2 If you die without a will, state laws generally direct that assets pass to children, if any, then to parents or siblings. In many cases, particularly if family members are unsupportive, unfortunately, assets may end up passing to parents and siblings rather than to a partner, cautions Thomas. 1 Prudential Financial: 2016/2017 LGBT Financial Experience Research Report, 2 Some states provide limited inheritance rights to unmarried couples in registered domestic partnerships and civil unions.

2 May Know your State s Laws Laws providing protections to members of the LGBTQ community can vary widely from state to state. In 28 states, you can still be fired because of your sexual orientation and there are no laws in place to prohibit discrimination in housing based on sexual orientation or gender identity. 3 Additionally, 17 states have no laws in place protecting against discrimination in employment based on sexual orientation or gender identity. 4 Only 21 states allow second-parent adoption for couples whose relationships are not legally recognized. Married same-sex couples are on equal footing now that marriage equality is the law of the land. Equality, however, does not lessen the need for basic estate planning. All states now recognize that surviving same-sex spouses have priority when it comes to receiving assets, and that they will generally pass tax-free to the surviving spouse. 5 The protection of state law for married couples is significant, but relying on state law is not recommended. State law can be boilerplate and inflexible. Assets must pass either entirely or in a fixed percentage to the surviving spouse at a rate set by the state. Laws vary greatly from state to state, so it is important to speak with a qualified attorney regarding how the laws where you live or own property may affect you. ¾ Planning Point The hard truth is that in some states, exercising your right to equality may come at a cost. For example, in a number of states you can still be fired based on sexual orientation. Discrimination still exists, despite the gains for our community. You need to know what you may be faced with before you make these decisions, says Max Barger, president of the Washington, D.C., PNC Proud EBRG and chair of the Wealth Strategy National Practice Group for the Modern Family. If privacy is a concern for you, a will, which is a public document, can be written with scant details that calls for the distribution of all assets to a revocable trust. Details of revocable trusts are not public. The revocable trust would then distribute assets based on your intentions. Family Planning For many LGBTQ couples, starting a family means either assisted reproductive technology (ART), surrogacy, or adoption. While the costs can vary widely, surrogacy costs can easily exceed $100,000 6 and adoption costs can be as high as $40,000 or more. 7 Because these costs are significant, many couples finance some or all of these expenses through borrowing. Your credit score and credit history is important when applying for a loan of this size. Building your credit history early can help open doors later. Use debt wisely. Do not take out too many credit cards, large car loans, or mortgages that your income cannot reasonably support as of April 25, See the PNC Center for Financial Insight article The Economics of Same Sex Marriage for a more detailed discussion of this and other issues related to same-sex marriage. 6 sexuality_and_gender_law_clinic_-_surrogacy_law_and_policy_report_-_june_2016.pdf. 7

3 May If your beneficiary designations and your estate documents disagree, assets will pass to your designated beneficiary instead of who you name in your will. Designations should be periodically reviewed and updated as necessary. Repaying debt on time and in full is an important part of building a solid credit history. This should help not only build good credit, it could help with monthly cash flow, which may also enable you to save more. Parental and adoption laws can be a planning concern for same-sex parents. All states allow for joint adoption for married couples, couples in recognized domestic partnerships, and civil unions. Only 21 states, however, allow secondparent adoption for couples whose relationships are not legally recognized. 8 If you are not in a state that allows for second-parent adoption, only one partner has legal custody. Should something happen to the adoptive parent, such as incapacity or death, the other partner may have no legal rights as a parent. If the adoptive parent should leave the relationship, the partner would have no parental rights. I think this is a real argument to get married if you live in one of these states without protection and to have very detailed legal documents to allow for the protection of the children, Thomas says. Additionally, in order for intended assets to be left to a child by the parent who is not the legal guardian, you may want to explicitly state this intent and include the child by name in your planning documents. Saving for Retirement For many individuals, retirement funds are one of their most valuable assets. Under ERISA, 9 your spouse is automatically the beneficiary of your defined benefit plan or 401(k) plan unless he or she signs a waiver. If you are unmarried, you can name your partner as primary beneficiary by contacting your company. ¾ Planning Point Some individuals are reluctant to name a same-sex partner as a beneficiary for fear of retribution from their employers. If you are hesitant to contact your employer, there are alternatives. Instead of naming your partner as your beneficiary, you may be able to name a special trust, referred to as conduit trust, as the beneficiary of your retirement plan through your will. The trust can then provide assets to your partner as if he or she were the owner of the plan. Special distribution rules apply to retirement plans, so the trust should satisfy these rules to avoid unfavorable tax consequences. 10 Individual retirement accounts (IRAs) generally are not covered by ERISA and do not automatically default to the surviving spouse. If no beneficiary is named, the owner s spouse, children, or estate become the beneficiary by default, depending on the contract terms. This means that if you are unmarried, IRA assets may not go to your partner. Further, there may be adverse consequences if your estate is an IRA beneficiary. Therefore, be sure to explicitly designate your partner or spouse as an IRA beneficiary with your IRA trustee/custodian if that is your intent. For those who have not yet started planning for retirement, it s not too late to start. Even small amounts put away early can grow over time. Combining budgets and juggling multiple financial priorities can be a struggle, but can also present opportunities to build saving into your monthly budget. Traditional IRA and Roth IRA accounts can be established with low initial contributions, and you can add to these accounts over time up to $5,500 in 2018 ($6,500 if you Employee Retirement Income and Security Act of 1974, as amended. 10 IRC 401(a)(9) and Treasury Regulations 1.401(a)(9)-4, Q-5.

4 May are age 50 or older). If your employer offers a retirement plan, such as a 401(k) plan, having contributions taken directly out of your paycheck, generally with pre-tax dollars, can be an easy way to make saving for the future automatic. If your company matches contributions, taking advantage of this program can multiply the money you set aside for your retirement with no additional effort on your part. Determine Your Family is Covered Marriage equality and the Patient Protection and Affordable Care Act have made adding your same-sex spouse to your employer-provided health insurance a right. 11 Additionally, some employers now offer health care insurance to same-sex partners who are not married. You may need to provide evidence of your relationship to qualify your partner for coverage. This varies by employer, and may take the form of proof of cohabitation and shared expenses. It is important to note the cost of coverage for an unmarried partner will generally be treated as compensation to you and will be added to your taxable income. Many employers also offer life insurance on the lives of their employees and in some cases, on the lives of spouses or dependents. With marriage equality, same-sex spouses may now be eligible to participate in employer-sponsored life insurance. Participating in a group plan can be advantageous, particularly if health issues would make obtaining life insurance difficult or expensive. If you are unmarried, and you want to purchase employer-sponsored life insurance for your partner, contact your employer s human resource department to see if this is a possibility. Many insurance companies offer life insurance and long-term care insurance for unmarried couples. The ability to purchase insurance for a nonspouse has been around for a while, but companies are making additional efforts to educate LGBTQ couples about this benefit. As with health insurance, additional documentation may be necessary to provide evidence of your relationship before insurance can be obtained. It is important to note that many aspects of insurance law are governed by state statutes, which can vary widely. If you take advantage of any of these insurance options, make sure the beneficiary forms reflect how you want the proceeds to pass after your death. As we celebrate the progress that has been made, let s look to the future. Understanding your rights and implementing a plan that fits your needs is the first step toward securing your long-term wellbeing. For more information, please contact your Hawthorn advisor. 11 Code of Federal Regulations, Title 45, (e) (2017).

5 May The PNC Financial Services Group, Inc. ( PNC ) uses the marketing name Hawthorn, PNC Family Wealth to provide investment, wealth management, and fiduciary services and the marketing name PNC Center for Financial Insight SM to provide wealth planning education to individual clients through its subsidiary, PNC Bank, National Association ( PNC Bank ), which is a Member FDIC, and to provide specific fiduciary and agency services through its subsidiary, PNC Delaware Trust Company or PNC Ohio Trust Company. Standalone custody, escrow, and directed trustee services; FDIC-insured banking products and services; and lending of funds are also provided through PNC Bank. This report is furnished for the use of PNC and its clients and does not constitute the provision of investment advice to any person. It is not prepared with respect to the specific investment objectives, financial situation, or particular needs of any specific person. Use of this report is dependent upon the judgment and analysis applied by duly authorized investment personnel who consider a client s individual account circumstances. Persons reading this report should consult with their PNC account representative regarding the appropriateness of investing in any securities or adopting any investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. The information contained in this report was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy, timeliness, or completeness by PNC. The information contained in this report and the opinions expressed herein are subject to change without notice. Past performance is no guarantee of future results. Neither the information in this report nor any opinion expressed herein constitutes an offer to buy or sell, nor a recommendation to buy or sell, any security or financial instrument. Accounts managed by PNC and its affiliates may take positions from time to time in securities recommended and followed by PNC affiliates. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Act ). Investment management and related products and services provided to a municipal entity or obligated person regarding proceeds of municipal securities (as such terms are defined in the Act) will be provided by PNC Capital Advisors. Securities are not bank deposits, nor are they backed or guaranteed by PNC or any of its affiliates, and are not issued by, insured by, guaranteed by, or obligations of the FDIC, the Federal Reserve Board, or any government agency. Securities involve investment risks, including possible loss of principal. Hawthorn, PNC Family Wealth is a registered service mark and PNC Center for Financial Insight is a service mark of The PNC Financial Services Group, Inc The PNC Financial Services Group, Inc. All rights reserved.