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Financial Planning Challenges for Same Sex Couples

Same-sex couples, like Lisa and Beth, need to keep in mind that even though domestic partnerships or civil unions are recognized by some states (Vermont, Connecticut, New Jersey, Maine and Hawaii) and gay marriage is allowed in Massachusetts and New York, the Federal government does not recognize them as a couple. Consequently, they are not entitled to the nearly 1,000 Federal tax and other laws that benefit those allowed to marry.

Here is a brief description of some of the financial planning or legal tools useful to same-sex couples. We recommend that you seek legal advice on which of these would be most appropriate and how to implement a strategy.

Wills and/or Revocable Living Trusts: Lisa and Beth would need a will and/or a living trust to allow their assets to pass to each other. A revocable living trust holds title or ownership to your assets and your trustee distributes your assets per your wishes after your death. A living trust also keeps your affairs private because it avoids probate, unlike a will, which passes through probate and becomes part of the public record.

Beneficiaries: Be sure to review your beneficiary designations on retirement accounts, stock options, life insurance and any other assets.

Domestic-partner Registration: In certain states, you can register your other half as a domestic partner and be afforded state spousal rights, such as the right to inherit without a will. While it may be a good idea to take advantage of this registration option, it is still important to have an updated will and other current documents.

Advance HealthCare Directive (Living Will): An advanced health care directive, like a living will, allows you to appoint an agent (your partner) to make medical decisions on your behalf should you become incapacitated. It would also permit your partner visitation rights in an emergency. Without a health care directive, your partner may not be allowed visitation rights as they may not otherwise be considered a family member or spouse. It may also be advisable to give your partner Health Insurance Portability and Accountability Act authorization — a document that will authorize your insurer to release medical information to your partner.

Durable Power of Attorney for Finances: This document designates an agent, potentially your partner or an adviser, who will keep your partner's interests in mind and make financial decisions if you become incapacitated.

Domestic Partner Agreement: Similar to a prenuptial agreement, this document specifies who gets what in the event of a split or death.

FPA member Elizabeth Cox, CFP®, is a principal with Cox Financial Services, LLC. in Westport, Conn.