Civil But Not Equal-But You Can Still Take Steps to Save Money

Monday Jan 25, 2010
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For gay, lesbian, bisexual and transgender individuals, reaching financial goals can often present unique challenges. As a community, there are legal and tax issues we need to make sure are addressed.

Many of us now live in states that have passed civil rights legislation protecting us from discrimination in housing, employment and credit. Many of us are unaware of the penalties that exist for domestic partners when applying for Medicaid, Social Security, and pension plan survivor benefits. There may be grave problems such as estate tax due, the loss of our partner’s pension, and the loss of social security benefits.

Even though we may be married or have a civil union under state law, this does not supersede federal laws. Not even to mention estate tax concerns upon the death of a spouse. The following are financial strategies for you to consider with your legal and tax advisors that could mean thousands of dollars in taxes saved.

During the most vulnerable time of our life a potential crisis is lurking. We have just lost our life partner. We did a will before we bought our home so we do not have anything to worry about right?

The amount of assets to be inherited from our partner may be subject to estate taxes. That is why it’s important to prepare for this with generally income tax free vehicles such as life insurance. (See IRC Section 101(a).)

Unless the law is changed, the estate tax applicable exclusion amount will be reduced to $1,000,000 in 2011. This could force the remaining partner to sell the home in order to pay off the tax burden to the IRS. Products like life insurance can be used to help pay estate taxes. There are ways to structure ownership and beneficiary arrangements to reduce estate taxation.

Sometimes annuities may be appropriate to lessen current income tax burdens, but payments made to your partner beneficiary will be subject to income tax in addition to estate tax (although an income tax deduction is available for the federal estate tax paid on the annuity).

Working with an attorney, ownership of assets can be put into the form of a trust. Let’s try to keep as much of our hard earned money as possible for either our partner, children or other persons of our choosing upon death.

Many GLBT couples are under the illusion that our current savings will adequately meet our retirement needs. Oftentimes the loss of pension plans and social security survivorship benefits are not factored into what we need to save. Even in states that recognize marriage to gay and lesbian couples, many traditional employer pension plans do not allow for survivor benefits to domestic partners.

The money that your partner receives could be completely gone upon his or her death. Working with a financial professional, strategies can be put in place to help maximize contributions to employer sponsored plans and starting Individual Retirement Accounts (IRAs). These strategies can help sustain incomes for today’s longer retirement lifespan.

For married heterosexuals, if a spouse is in a nursing home and applies for Medicaid, the healthy spouse can remain in the house if jointly owned. However, for domestic partners, a healthy partner cannot remain in a jointly owned home unless the remaining partner buys out the ill partner’s share of the home.

Medicaid treats the home as an asset that must be "spent down" before coverage begins. In many instances, you may be eligible for food stamps before becoming eligible for Medicaid. This is why long-term care insurance should be evaluated when preparing for our later years.

Some helpful hints to look for when interviewing a financial professional is seek an individual sensitive to and educated about our needs. Also, consider doing business with companies that support our causes such as the Gay & Lesbian Alliance Against Defamation (GLADD), which promote fair and inclusive representation of the gay community in all media to help eliminate discrimination.

Look for companies that offer spousal discounts for domestic partners that are the same as married couples. Also seek companies that offer domestic partner benefits for their employees.

Even if you are currently single and concerned about protecting your independence and meeting your distinct needs now and in the future, being prepared will help you enjoy a future that you envision. Perhaps you are in a committed relationship and want to help ensure that your wealth works hard for you and your partner.

Because of the lack of federal recognition of homosexual marriage, it’s even more important that we seek out financial professionals. This action could help save you a great deal of unnecessary taxes and needless burdens later in life.

Prudential and its licensed financial professionals do not provide tax or legal advice. Please consult your tax and legal advisors regarding your personal situation.

Annuities are designed for long term and retirement planning purposes. Income taxes are payable upon withdrawal. A 10% federal income tax penalty may apply to withdrawals prior to age 59 ½.

IFS-A115803 Ed. 5/09, Expires 11/13/2010

Provided courtesy of Prudential. For more information, contact Jordan Cohne, Agent with The Prudential Insurance Company of America’s Greater Boston & Ocean State Agency located in Needham, Mass. Jordan Cohne’s private office is located in Easton, Mass. He can be reached at jordan.cohne@prudential.com' target='new'jordan.cohne@prudential.com|jordan.cohne@prudential.com>.

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