Julian Washington still keeps a book by his desk used in a previous career as a lawyer called Advising Gay and Lesbian Clients: A Guide for Lawyers, published in 1999. “I sometimes flick through that book to remind myself how far we’ve come,” says Washington, now RBC Wealth Management International's head of intermediary relationship management, based in London.
The book covers various aspects of estate planning for same-sex couples, including wills, powers of attorney, tax planning, parental rights and other topics of relevance to LGBTQ people. “There was a great big gap and mismatch between rapidly evolving social conditions for lesbian and gay couples, and the law that didn’t keep up,” Washington says.
Today, thanks to the legalization of same-sex marriage in countries such as the United Kingdom, Canada and more recently in the United States, estate, financial and tax planning are largely the same for gay and straight unions.
“My goodness, what a journey it is has been to get to where we are today,” reflects Washington. “People in countries like these are lucky to be living in places where equality in this area of the law has been achieved.”
Awareness is key to effective estate, tax and wealth management planning
Given that the changes in laws are relatively fresh in some countries, some LGBTQ households may not be aware of their rights when it comes to financial, tax and estate planning. Or they may be complacent — not unlike heterosexual couples. This is especially true for LGBTQ couples in the U.S., given that same-sex marriage was legalized in 2015, a decade later than in Canada.
Wealth management planning includes a broad spectrum of activities: how you build and protect your assets throughout your lifetime, planning for major expenses such as vehicles and mortgages, and long-term costs such as a child’s education, purchasing a home, and saving for retirement. Estate planning refers to planning who will receive your assets after you die, how those assets will be distributed, how you would like to be cared for if you become incapacitated before death, and guardianship of any minor children. Tax planning informs both wealth and estate planning, helping to anticipate what taxes must be paid during different life stages.
“The focus today with clients is awareness,” says Ellen Krider, financial advisor and vice president at Fort Lauderdale, Fla.-based CKM Wealth Management Group, a division of RBC Wealth Management U.S. “As advisors, we need to have an affinity and understanding of the individuals, because this is such a recent thing,” Krider says.
Before gay marriage was legal, Krider says some same-sex couples did a lot of sophisticated planning, which provided them with similar tax treatment to that of heterosexual couples. Now, says Krider, they may need to unwind those structures. Some couples may even choose to not marry in the U.S., despite its legalization, due to the tax treatment. That’s because gaining legal recognition as a married couple may put them into a higher tax bracket if they were to file their taxes jointly.
“Taxes shouldn’t be a reason to get married or not, but (tax treatment) is something to be aware of,” says Krider. “The major thing is supporting the community and understanding that just because they can, not all gay couples will want to get married. Either way, planning becomes very important.”
Another financial consideration is how a spouse is treated through corporate benefit plans, including health and wellness benefits, as well as pensions, which may vary by company and region.
What’s more, even though gay marriage is legal, some U.S. states are slow to comply. This can be an issue around health-care decisions made on behalf of a spouse, which may not be recognized in some states — or even individual health-care centres. Krider recommends couples maintain legal documents that prove their marriage status, just in case. “Even though the federal government says you’re just like every other couple, unfortunately, in some people’s minds, they’re not,” Krider says.
Washington says same-sex couples may also need professional advice if one of them relocates to another country, perhaps for a new job opportunity, and wants to take their spouse with them. It can become particularly complicated if that country doesn’t recognize same-sex unions. “That can throw up some pretty tricky questions around visas and immigration,” Washington says. “Couples in this situation will need specialist advice to find (solutions).”
“While some of the rules are complex, the good news is that same-sex couples can now be thinking about their financial futures — and how best to manage all of those things — together,” he says.
Moving beyond equal rights to funding education, estate planning
Many same-sex couples have children. These may be children from a previous relationship, or perhaps from an adoption, surrogacy or other arrangement. The law in these areas is complex and varies widely across jurisdictions. Krider says the estate, tax and wealth planning around children is similar to that of heterosexual couples.
For wealth management planning, couples should save for their kids’ education, as well as any other expenses they want to help out with, such as buying a first car. Estate plans may need to be updated to include children, and if they’re not yet adults, guardianship. With tax planning, Krider says same-sex couples may also consider taking deductions as part of their joint taxes for expenses such as a child’s education, whereas before they may have claimed it only on one person’s taxes.
Having equal rights as parents also means potentially having to pay child support if the same-sex couple seeks a divorce down the road, Krider adds. “Once same-sex couples have been legally recognized as co-parents, it’s a matter of knowing that it’s no different that heterosexual couples in all aspects,” Krider says.
The advisor’s role is about creating an inclusive environment
Advisors have a role to play in empowering same-sex couples in their financial, tax and estate planning, many of whom may still be uncomfortable talking about their personal lives, says Jennifer Lemieux, Vice-President and Branch Manager at RBC Dominion Securities Inc. in Kingston, Ont.
“Even though the laws have changed, everyone is at a different place in their personal journey,” says Lemieux. “Some people have a difficult time coming out to their families or in their workplace, let alone walking into a professional stranger’s office and pouring out their heart and soul about their future plans.”
“Our job is to create an environment where they feel safe enough to be their authentic selves,” Lemieux says. Part of a wealth management professional’s role is to make clients feel welcome and willing to share personal information, regardless of their sexual orientation. If a client feels uncomfortable, for whatever reason, he or she won’t feel free to move forward with the key elements of estate, tax and wealth management planning.
“Clients need to share everything that’s important to them, including people in their lives, their future plans and their retirement dreams,” says Lemieux. “The only way they get to do that is if we create a safe environment where they are able to share everything with (their financial advisor).”
RBC has long been a champion of LGBTQ rights and freedoms — not just for clients, but also for employees. In our U.S. Wealth Management business, we are recognized as the “Best Place to Work for LGBT Equality” by the Human Rights Campaign 2016. Lemieux is co-chair of RBC Wealth Management’s diversity and inclusion initiative, which “helps make everyone feel valued, and that their voices are heard.”
“We need to ensure we’re always telling that story, making people feel supported and valued,” says Lemieux. “Sometimes that’s almost more important to a client – that they feel respected.”