Important Takeaways from the Betterment LGBT Wealth Management Panel

This past week, I had the pleasure of speaking on a LGBT Wealth Management Panel for Betterment, one of the country’s leading robo-advisors.

We addressed a lot of financial issues that the LGBT community faces, as well as heard what was on the minds of the audience members.

Here are a few of the questions and answers that I think are especially useful.


What’s the biggest mistake that you’ve seen your clients make?

Not having a strategy and trying to plan piecemeal – It’s like starting a road trip without knowing whether you’re going to New York, Florida or Colorado. There’s so much noise and information out there that people tend to grab pieces of it – 6 month emergency fund, 20% down payment for a house, investing for retirement – without taking into consideration how those things apply to them personally. Instead you should start with your goals and values (i.e., knowing where you want to go) and develop your plan with those things in mind.

Forgetting that financial planning is comprehensive – Financial planning isn’t just about investing. You have to make sure you offset some of your risk with insurance, learn the value of smart tax strategies and protect your family with proper estate planning.

Not paying attention to fees – But speaking of investing, fees make a big difference. My former law firm was paying 2.5% in fees for our retirement plan before we switched. A company that I now advise for was paying a 4.5% sales charge on all investments up to $100,000, on top of high investment expenses. Over a 30-year time horizon, that leads to losing hundreds of thousands of dollars. Do yourself a favor and check out the fees on your 401k plan when you get to work tomorrow.


Gay marriage is relatively new, how has this change impacted wealth planning for your clients?

Well, there are over 1,100 federal rights, benefits and protections that come with marriage. So I make sure that my clients understand the best ways to take advantage of them.

  • Cheaper health insurance
  • Access to a spouse’s social security benefits
  • Income tax changes (the marriage penalty or bonus)
  • More investing options (spousal IRA)
  • Lower estate tax

We also have to think more about things that need to happen before you marry – pre-marital agreements  or the costs of a wedding.


Where does financial planning start to differ for LGBT individuals or couples relative to heterosexual individuals or couples?

We are just starting to learn more about the nuances and differences. More groups are studying how finances specifically affect our community. Two recent studies come to mind:

Based on the sudden boom in same-sex marriages, the Treasury Department did a study that NY Times called “The Most Detailed Map of Gay Marriage in America” based on 2014 tax returns. Some interesting stats:

  • Male same-sex couples had average earnings of $176,000, which was $52,000 more than married lesbians and $63,000 more than married straight couples.
  • Same-sex married men with children had gross income of $275,000 more than double the pre-tax income for heterosexual couples.

Prudential conducted two studies, one in 2013 and another in 2016 that explored “the hopes, dreams and fears of LGBT Americans”:

  • LGBTQ respondents are less likely to have started saving or investing for retirement, have insurance products or have a will or estate plan.
  • More LGBTQ respondents consider themselves spenders – 48 percent versus 32 percent of the general population.
  • And there’s still a lot of workplace insecurity: Currently only 22 states and the District of Columbia have an anti-discrimination statute that includes sexual orientation (and two of those states don’t include identity…the T in our group). In other words, 28 states still allow an employee to be terminated based on sexual orientation.


What should LGBT couples take into consideration with regard to children?

The first thing you need to figure out is why and how you want to expand your family. Do you want to provide a home to a child already in the world? Are you wanting to raise a baby from birth? Do you want to share the same biology?

Those decisions will determine what method you use to create your family and the costs associated with it. And there’s a wide range of costs. Anywhere from under $1000 for Foster Care Adoption to over $150,000 for Gestational Surrogacy.


How should LGBT couples approach estate planning?

The short answer is with diligence. This is one issue that I see a lot of my clients not do or leave until the last minute.

I was just talking with an estate planner that I work with, and she’s already seeing that some people that have felt empowered with the new administration to act contrary to state law. So it’s very important for LGBT folks to do proper planning, like having a spouse or life partner identified as such in their planning documents. Updating beneficiary designations and deeds. For example, in Illinois, we can take advantage of tenancy by the entirety, which helps protect certain joint property from creditors.


What can we expect from the next four years? Worst-case scenario?

There’s a lot of uncertainty about what will happen based on the proposals that the president-elect has made. The good news is a lot of these changes won’t happen the day after inauguration. It may take a couple of years. So stay vigilant tracking of the changes. A few things to keep on your radar:

  • Marriage seems to be safe but the Court may be in trouble. We know he will appointment one justice, maybe more.
  • His proposed tax plan says it will cut taxes across the board. But the majority of the savings will go to the highest .1 percent of taxpayers. Additionally, the Tax Policy Center thinks millions of middle class families will see their taxes rise and the government will lose $6.2 trillion in revenue
  • The newly minted DOL fiduciary rule could be removed or watered down. Be cognizant of potential conflicts of interest in your retirement planning.
  • Getting rid of Obamacare will affect some 20 million people. He claims to have a substitute that will be more effective and less costly but hasn’t provided details.
  • Getting rid of estate and gift tax
  • He can immediately through executive order revoke or limit protections for LGBTQ individuals in schools, housing and work.

With this uncertainty, there’s no better time to get your financial house in order and focus on those things that you can control.


Am I forced to file taxes jointly? Can I switch back and forth?

You must file either MFJ or MFS, if you’re legally married. (There’s an exception if you qualify for head of household and lived apart from your spouse the last half of the year.) You get to pick each year which filing status would benefit you the most. Most likely it will be MFJ, but one exception may be when you have a lot of student loans.

If you change your mind, you have three years to amend a return from MFS to MFJ. You can’t ever go from MFJ to MFS.


How do I know if my advisor is doing well, if I can’t tell if he/she is beating the market

The focus shouldn’t be on market returns. Your advisor should help you focus on the things you can control – costs, diversification, asset allocation, savings rate, etc. Your advisor should also review topics other than investing – taxes, insurance, estate planning and fundamentals like cash flow.


What should I do tonight if I don’t have a financial plan or haven’t prepared for retirement?

Start now. You’ll always have an excuse of what you think you need to do or what you have to have in place to start planning. Don’t do that. Waiting only makes it harder and harder to reach your goals.