Personal Finance
Financing for gay couples
October 11, 1999: 10:42 a.m. ET

Gay and lesbian couples must take extra steps to protect their assets
By Staff Writer Shelly K. Schwartz
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NEW YORK (CNNfn) - Jeffrey Newman doesn't apologize for his lifestyle and he isn't the type to let narrow-minded thinking keep him down.
     As an openly gay male, the president and chief operating officer of, The Gay Financial Network is prepared to walk down the aisle this Saturday to exchange vows of matrimony before friends, family and the world -- in what will become the first online broadcast of a gay wedding in history.
     For Newman and his long-time partner, however, pre-nuptial planning has gone beyond flowers and cake. It's involved countless hours with an accountant and some creative financial planning to ensure their commitment to each other is protected under the law.
     "I'm entering into a non-legally binding marriage and suddenly I'm faced with all these issues I've been writing about and speaking about over the years," Newman said. "We're forming a limited liability corporation, or LLC, so we can enjoy some of the same tax benefits that legally married couples receive."
The challenge

     Gay and lesbian couples these days may be gaining acceptance in mainstream America - as hit television shows like Will & Grace would suggest - but when it comes to asset protection and financial planning options, experts say, they've still got a long way to go.

     By far, Tom Swift, vice president of the Horton Investment Advisory Group in San Francisco, said one of the most immediate challenges facing members of this community is in finding professional advisors who understand their special needs.
     "I have clients who say they are 'out' to everyone but their stock broker and that astounds me," said he said. "If a stock broker doesn't know all of your specific circumstances, they can't create an investment plan that tailor meets your needs."
     To make your life easier,, The Gay Financial Network offers a free online database containing information on gay-friendly financial planners, real estate service providers, legal experts, accountants, mortgage lenders and insurance providers. The directory even allows you to search for professionals in your state.
     Swift, who works exclusively with gay and lesbian clients, said part of the hesitation many homosexuals feel in disclosing their sexual orientation with bankers and brokers stems from the lingering homophobic mentality that still shrouds the industry.
     "I think Wall Street is still a little behind the time when it comes to this issue," he said. "But because we can't marry, there are all sorts of issues that we have to work at that traditional couples just get."
     Among them, estate planning tools, retirement plans and health care provisions.
The basics

     If you or someone you know is in a gay or lesbian relationship, there are a few basic things you should consider.
     First, recognize that you'll need to place a little more emphasis on your retirement savings - since most won't have children to care for you as you age. At the same time, however, many gay and lesbian couples benefit from greater savings power, since they don't incur the costs of raising children, and are often able to retire earlier than their heterosexual peers.
     Also, Swift said you'll want to make sure you and your partner are insured under a life insurance policy and that you've named each other as the beneficiary.
     Also, makes sure your partner is protected through durable powers of attorney, health care powers of attorney, wills and trusts.
     But be careful, because gay marriages are not legal in the eyes of the IRS, you'll have to take extra steps to ensure your assets and estate will be passed on to your partner in the event of your death.
     John Lewis, marketing manager for MetLife Securities, Inc. in San Diego, said it's not uncommon for the family members of a gay or lesbian individual who passes away to step in and contest the rights of the long-time partner.
     Even in cases when a will has been left behind, the partner is sometimes cheated of their rightful benefits and forced out of the home he or she has shared with the deceased for years.
     "Wills, as an estate planning tool, can be contested," Lewis said. "It's our practice to strongly recommend that [gay couples] set up a revocable living trust. That's really the only way in the gay community to protect your assets and provide for your partner."
     Revocable trusts enable the person who created it to make changes to their will at any time during their life. When they die, the trust can be altered by no one and his or her wishes become "set in stone."
     "They are very difficult to challenge," Lewis said.
A business relationship

     These days there are a host of other financial planning tools available to the gay and lesbian community as well. Many tap into the basic strategies of business protection.
     "When it comes to investment advice and planning in this type of atmosphere we find that it's more like a business," Lewis said. "You have to take a look at the relationship in a business sense because it's the only way to make it legal."
     When a gay or lesbian couple establishes an LLC, for example, they create a fictitious business name and their collective assets become incorporated. Often, both individuals hold equal stakes in the LLC, and a third party administrator (or trustee) is brought in to manage the estate - if and when one partner passes away.
     In California, the cost of incorporating will run you about $1,600 to $1,800.
     Lewis said LLC's are complicated and they're not for everyone. As an alternative, you could also set up a foundation that defines the legal rights of you and your partner, he said, or you could simply choose to adopt your partner (or vice versa).
     Using this tool, Swift said, one member of the couple legally adopts the other -- making him or her the rightful beneficiary to their assets.
     "It's completely legal and when you really look at it, the only way to ensure that my business, or assets adequately transfer to my partner is to create some kind of legal family tie," Swift said. "It happens out here [in California] quite frequently. It's difficult to undo and it's legally binding."
     As with all legal contracts, you should think long and hard about which option is best for you and your partner. And it's a good idea to seek the advice of more than one professional before setting anything in stone.
Tax time

     There is one last major consideration you should take into account -- estate taxes.
     In a traditional marriage, the Internal Revenue Service allows the person who dies to pass on up to $650,000 to their heirs (children), plus another $650,000 for the spouse under the marital tax deduction without incurring estate taxes. Because they are not legally married, gay couples do not qualify for the deduction.
     "That's where we hurt the most," Lewis said.
     But until the law gets changed, he noted, there's no getting around it.
Choose carefully

     Lastly, Swift said the most important thing for gay and lesbian couples to remember is that none of these legally binding contracts should be entered into lightly
     "A lot of these legal contracts made [in the late 1980s] had more to do with the HIV crisis than the relationship," he said. "Many couples created them because they wanted some assurance that their assets would be passed on as they wished, but these are legal contracts and they can come back to haunt us. They are very difficult to undo."
     Swift, who is HIV positive, said that's a lesson he learned the hard way.
     "The first thing I do for new clients is to try to figure out how strong their relationship is," he said. "When I first discovered I had HIV I ran out and set up these contracts with my partner. But later on, when I learned that with effective medication I was going to live a much longer life, I discovered that the last person I wanted to live with was the person I had asked to die with."
     His advice for gay and lesbian couples exploring their financial planing options: "Just make sure this is the person you want to spend the rest of your life with." Back to top


An option for the dying - Sept. 2, 1999

The trouble with trust funds - March 1, 1999


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