Since same-sex marriage was legalized, Merrill Lynch Wealth Management Strategic Wealth Advisor and member of the LGBTQ+ community, Michael Duffy, says there are some unique challenges LGBTQ+ couples face when it comes to financial planning and estate planning. For couples that are working in the entertainment industry, where income can be unpredictable and taxes complex, it’s important to have a financial advisor who “gets” you. MLWM understands the strategies that uniquely support clients, including LGBTQ+ couples. Our research has uncovered opportunities and solutions that focus on five key areas of planning:
#1: Tax planning
It’s important to understand the tax benefits of being married and how they can help you maximize financial outcomes. When you and your spouse file as “married filing jointly,” you may actually move to a higher income tax bracket, sometimes referred to as the “marriage penalty.” “Although this can be disappointing come tax season, benefits like gift-splitting, the unlimited marital deduction and the ability to transfer twice as many assets to heirs without paying a transfer tax, can outweigh the marriage penalty,” Duffy explains. As a married couple, you and your spouse can “split gifts” on your gift tax return, which allows you to make gifts from a spouse’s separate property but claim that the gift is coming from both of you in order to leverage each spouse’s annual exclusion gift amounts and your lifetime gift exemption amounts. With the unlimited marital deduction, spouses can pass an unlimited amount of wealth to each other during life or at death without paying gift or estate taxes.
There are many other tax benefits married LGBTQ+ persons now enjoy. For example, married couples who file jointly can avoid paying capital gains tax on the first $500,000 of gain when selling their house, whereas an unmarried person can only shield $250,000. Additionally, a jobless spouse can open an IRA. And surviving spouses can stretch an IRA they inherit from a deceased spouse, so they can take the required minimum distributions over their lifetime. On the other hand, a single person must withdraw the entire value of an inherited IRA no later than 10 years after the original IRA owner’s death.
#2: Family planning
From assisted reproductive technology like IVF to surrogacy and adoption, the pathway to parenthood for many couples is shockingly expensive. For LGBTQ+ couples, there may be additional costs that cisgender couples may incur. Family planning options like surrogacy can come with a six-figure price tag, domestic adoption costs up to $45,000, and international adoptions can cost up to $70,000. In some cases, domestic adoption is easier for LGBTQ+ couples because several countries still prohibit LGBTQ+ adoption. Couples who opt for IVF spend over $20,000 per cycle with no guarantee. And most of the time, these processes involve legal expertise, which results in additional costs.1 With most insurance policies denying full or partial coverage for IVF and surrogacy often falling in the six-figure range, couples will need to financially compensate for what the current healthcare system lacks.2,3
In addition to the significant costs associated with starting a family, there’s also the cost of raising children, which can be more if the family chooses to relocate. If one or both of the spouses are in the public eye, they may also decide to send their children to private school, which means the tuition bills start coming long before college.
#3: Retirement planning
Many professional entertainers are self-employed, which means they don’t have access to a traditional employer-sponsored retirement plan to help save for retirement. If that’s the case for you and your partner, you’ll want to explore other tax-advantaged savings strategies, such as Individual Retirement Accounts (IRAs) which can include Traditional IRAs, Simple IRAs, SEP IRAs and 401(k)s. If you are self-employed, talk to your advisor about the ability to “stretch” the assets over your beneficiary’s lifetime. For example, the passing of the SECURE Act in 2019 imposed a 10-year distribution timeframe for some beneficiaries of inherited IRAs.
Also, since Social Security may play a role in couple's retirement income and estate plan, both spouses should make sure they understand how Social Security spousal and survivors’ benefits are determined. Although LGBTQ+ married couples now have the same benefits as straight, cisgender married couples, they may face an uphill climb in accessing some of these benefits. For example, Social Security survivors’ benefits were initially calculated from 2015, which means a member of an LGBTQ+ couple who has shared a four-decade-long partnership with their spouse would not be eligible for the same number of benefits as a straight couple who spent those same number of years in a legal marriage. Today LGBTQ+ couples may qualify for these benefits if they can prove that they would have been married at the time of their partner’s death or married for longer if same-sex marriage were legal at that time, but this is not guaranteed.4
#4: Long-term care planning
In addition to typical long-term care considerations, like securing comprehensive health insurance policies, finding an LGBTQ+-friendly retirement community tops the list of care priorities for most married couples in the LGBTQ+ community.5 “Seeking a community that cares about you and welcomes you, a place where you can feel comfortable, is of the utmost importance,” Duffy says. “Because retirement communities tailored to LGBTQ+ couples are fairly new and, as of now, there are very few, you and your spouse will want to have the funds available to secure your spot.”
#5: Estate planning
Because same-sex marriage was recognized under the law relatively recently, many LGBTQ+ couples have existing estate planning documents that should be reviewed. “Even if you included your partner in these documents before your marriage, you would want to ensure that the way they are listed reflects your marital status,” Duffy explains. “This way, your spouse can easily claim the unlimited marital deduction from federal gift and estate taxes. You should also check that your beneficiary forms for your 401(k), IRA and life insurance align with your will, as these binding documents will supersede whatever you write in your last will and testament.”
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At Merrill, we’re committed to helping you maintain long-term success for yourself, your family, and the people and causes you care about. Our Merrill advisors are more than financial guides — they’re confidantes. They understand the unique financial challenges of being an LGBTQ+ couple in the entertainment industry and are ready to take every step forward alongside you.
How Bank of America supports the LGBTQ+ community
Bank of America supports the LGBTQ+ community, from the personalized services we give to our LGBTQ+ clients to the culture and benefits we provide to the people who make our mission of bettering the financial lives of our clients and communities possible. We formed the first Gay and Lesbian employee resource group in the early 1990s, and today, our LGBTQ+ Pride network has grown to more than 38,000 allies and out-at-work teammates.
We’re proud to earn a 100 percent on the Human Rights Campaign Foundation’s Corporate Equality Index, the national benchmark tool measuring workplace equity and culture for the LGBTQ+ employees. As the first financial services company to offer domestic partner benefits in 1998, we’ve expanded LGBTQ+-focused benefits to include paid parental leave and gender transition support.6,7