Tremendous strides have been made in same-sex estate planning through Supreme Court cases and many other developments. However, the statistics of difficulties facing the LGBTQ community are alarming. And, it is clear more work needs to be done.
The modern family has evolved and changed over time. The attorney’s role as advisor is to really know client families. It is difficult to competently advise families if the practitioner is not knowledgeable about modern family structures.
Case Study Illustrating LGBTQ Planning Issues to Consider
Mother goes to an attorney to draft documents to benefit her daughter and her daughter’s unborn child. The attorney drafts the documents using the traditional definition of descendants, assuming that the daughter is carrying the child. A few years later, the attorney receives a call, informing her that mother had just passed away and daughter had tragically pre-deceased her. The attorney is confident that mother’s documents will benefit the daughter’s surviving child. However, during the course of the estate administration, the attorney finds out that daughter’s partner is a transgender male and is actually the person who carried daughter’s child to gestation. Daughter and partner were never married, daughter never adopted child, is not genetically related to child, and daughter is not named on the child’s birth certificate. Mother’s sister, who has long disapproved of daughter’s relationship, sues, asserting that she is the rightful heir of mother’s estate. The court finds in favor of mother’s sister.
Some Sobering Statistics
The LGBTQ community is much larger than most realize. Many practitioners also have many more LGBTQ clients then they realize as well. As of May 2018, nearly 4.5% of the US population identifies as LGBTQ. Approximately 5.1% of women and 3.9% of men identify as LGBTQ. There are wide differences among the generations too. Roughly 12% of millennials identify as LGBTQ. Looking back at older generations, those stats decrease; perhaps because of people’s discomfort with claiming an identity. It’s also possible the statistics are higher because of societal acceptance levels.
Planners should keep in mind that if 12% of millennials identify as LGBTQ, we may have a significant number of older clients who may be LGBTQ but not identify as such. Nonetheless, a much larger percentage of clients than we realize may, in fact, have these issues to address as, down the line, there may be an assignment who identifies as LGBTQ. Across the board, the nuclear family has been redefined. Family dynamics are changing, including a two-partner work force. Understanding the dynamics and vocabulary as related to the LGBTQ community is key to properly providing estate planning services to this large client base.
How Firms Can Address LGBTQ Planning
One way a firm can build more confidence and a feeling of openness for LGBTQ clients is to incorporate questions that pertain to the LGBTQ community into standard estate planning organizers. Clients who see inclusion and demonstrated sensitivity on a client intake form may feel more comfortable being open and honest about their needs and wishes. This could include, for example, asking about their preferred pronoun. With regard to pronouns, remember that it is not only the client’s pronoun who should be considered, but also those of people they name. If a client sees pronouns on the e-mail signatures of professionals in the firm, a client may be more likely to be forward about their own pronouns and the pronouns of their loved ones. This is as simple as updating your email signature block to add something like “Pronouns: he/him/his.” For each and every client, it is good practice to make sure to verify everyone’s pronouns. This is important since even persons who are not part of the LGBTQ community may not have names, given or sobriquets, that traditionally match their gender. Names are not enough.
A study showed that 6% of transgender people reported having a negative experience with an attorney based on their transgender status. In fact, some have also felt that way with the medical profession as well. It is vital to educate planners to be thoughtful about the psychological impact of discrimination that clients and their families experience. For example, in the case study above, the mother did not share her full picture. Practitioners need to examine and reflect about why she didn’t feel comfortable speaking more openly. What questions could the attorney have asked to ensure a better outcome the next time a similar situation arises?
Practitioners need to learn and gain comfort with the terminology as well. It’s perfectly fine to ask your client to help clarify their needs. Practitioners do not have to be an expert in LGBTQ needs to provide excellent service; but they should have a basic understanding of the fundamentals so as to be able to implement the client wishes. Dialogue, communication, and a vested interest in serving all clients’ needs are critical.
A foundation for better helping LGBTQ clients is an understanding of some of the terminology involved.
Sex is the physical traits that you were born with and typically, people look at sex as being one of three categories: female, intersex, or male. Cisgender means if your physical traits match how you identify, then you would be considered a cisgender person. A transgender person is an umbrella term and there are varying degrees. Essentially, if your sex does not align with how you identify, and how you express yourself to the outside world, that person is considered a transgender person. Intersex is used to describe a wide range of natural, biological variations between male and female and accounts for 1-2% of people, which is itself a significant community.
Gender identity and expression can present a diverse and multilayered range and may be non-binary. Non-binary is the adjective describing a person who does not identify exclusively as man or woman. Some people who are non-binary identify as transgender, but it’s not exclusive. Queer is a term that sometimes can be used interchangeably with LGBTQ. Younger millennials may embrace the term queer, while older generations may feel the term has a negative connotation. Also, keep in mind a person may identify inside of themselves in one way, and present something else outwardly and publicly.
Use of gender-neutral terms in document drafting can be helpful; partner or spouse instead of husband and wife; child instead of son or daughter, etc. Gender neutrality also helps if, for example, a client or a named person might be transitioning gender. This is the process in which a person starts to align their gender expression. They show themselves outwardly to reflect what they feel inside of themselves. They may now have a “dead” name. A Dead name is a term used to describe the name that the person was assigned at birth that the person no longer wishes to use. This is important to keep track of for clients who may have a beneficiary who changes their name or gender. Documents may need to be amended to reflect the changes. In some cases, it’s best to redraft an entire document set, rather than an amendment, which could “out” the person to various institutions. It’s critical to fully inform the client and consult with them about their preferred course of action. Addressing names can have very important impact on the planning and drafting. Another reason to correct names in all the documents is to reduce the chance of violence or angry reactions that many LGBTQ people are subjected to by others.
There are other terms to become familiar with and understand. A Lesbian is a woman who is emotionally, romantically, or sexually attracted to a member of the same gender. Gay is a term to describe a person who is emotionally, romantically, or sexually attracted to a member of the same sex. A Bisexual is a person who is emotionally, romantically, or sexually attracted to more than one sex, gender, or gender identity, though not necessarily simultaneously, in the same way, or to the same degree. Asexual is a lack of sexual attraction or desire for other people. Pansexual describes someone who has a potential for emotional or sexual attraction to people of any gender; not necessarily simultaneously, in the same way, or to the same degree.
One overall theme that is important to keep in mind is that there is a wide variety of how people see themselves and/or express themselves. For some people these characteristics are fixed; for others, fluid.
As alluded to earlier, in Coming Out terminology, “closeted” describes a person who has not disclosed their sexual orientation or gender identity. Coming out is a process in which a person first acknowledges, accepts, or appreciates their sexual orientation or gender identity and begins to share that with others. Living openly is a state in which LGBTQ people are comfortable and open about their sexual or gender identity. There can be a range to be cognizant of, as well. Coming out is a process, and some people may not be out at all times. Many LGBTQ people are in a constant state of coming out. Keep in mind that gender identity and expression do not equal sexual orientation.
Words and Phrases to Avoid
It’s good practice to use the term “orientation.” Orientation is preferred over “sexual orientation” or “sexual preference”, which have negative connotations because most people do not see their orientation as a choice. Use of the term “homosexual” is not preferred. Use of terms like “gay” or “transgender lifestyle” are also not preferred; after all, we all have different lifestyles regardless of gender or orientation. Qualifiers are also no longer necessary when referring to marriage between consenting adults. Ask the client how they prefer to be addressed. For example, a cisgender male might feel offended not to be addressed as “him” or “his.” Signal to clients you are open and driven to serve both their planning and personal needs. It is fine to ask clients, “How would you like me to refer to you?” If you make a pronoun error, simply apologize and be sensitive moving forward.
Financial Planning Considerations for LGBTQ Clients
When it comes to financial planning considerations, people tend to forget is that, despite marriage equality, LGBTQ people still face discrimination in other realms of life. Advisors might consider having a conversation with their LGBTQ clients about investments to determine whether the client prefers a portfolio that invests in LGBTQ-friendly publicly traded companies. Sadly, studies have found that LGBTQ borrowers are more likely to be denied loan applications as a result of discrimination. Financial plans must contemplate the impact of costly family planning on the financial goals and the cash flow. The needs of the client (location, for example) also plays a role. Many LGBTQ people live in urban communities among like-minded people, which can often result in a higher cost of living. For the above reasons financial modeling should not rely on national average figures for expenses as that might material underestimate actual costs.
In addition to the financial planning considerations discussed above, plans for transgender people might also include conversations about the increased risk of unemployment resulting from discrimination. In fact, a 2015 study found that transgender individuals are three times more likely to be unemployed and twice as likely to be living in poverty. Something else to consider is the cost of treatments for transgender individuals. Keep in mind that these plans shouldn't only contemplate the financial lives of LGBTQ clients. You might also consider these factors in cases where your clients plan to support LGBTQ children or other family members.
Life Insurance Considerations
Generally, identifying as an LGBTQ person does not impact eligibility for life insurance. However, there are two points regarding life insurance to highlight. First, there are now life insurance companies that will provide coverage for those living with HIV/AIDS, which is a very important development.
For transgender applicants, there may be a question regarding gender. Life insurance applications will ask about an applicant’s gender. Underwriters use this information to determine mortality rates with actuarial tables which have traditionally corresponded with one’s sex assigned at birth. While some companies continue to use this model and there are now others that will quote life insurance policies based on one's present gender identification. When discussing life insurance with clients, these are some considerations that need to be addressed.
Drafting Legal Documents
If a client or a loved one is in the process of transitioning, or your client is part of the LGBT community but hasn’t identified, we want to be inclusive and to make sure that we're taking all the right steps. When drafting legal documents, consider whether the terminology used is gender neutral throughout the documents. If all client documents are treated with neutrality, it creates inclusivity and flexibility. It also makes it easier to draft documents for all clients.
Many trusts are dynastic and practitioners are well aware of the benefits of asset protection and estate tax planning offered by long term trusts. It is often ideal to have trust as for as long as state law permits. Incorporating supplemental or special needs into these dynastic trusts builds flexibility should a future need arise.
If a beneficiary in a future generation has needs related to their LGBTQ identity, this can be planned for and considered. And as discussed above, with each successive generation the proportion of people identifying as LGBTQ appears to be increasing. It should be done no differently than how planners routinely add supplemental needs provisions. From a planning and drafting standpoint, this can be conducted in the same fashion as a default standard or boilerplate provision for supplemental needs. You can devise the standard of all boilerplate provisions for future LGBTQ beneficiaries, even if there are none on the horizon today.
In addition to the pronouns question, it helps to know the relationships at play. In the illustration above involving “Mother” for example, the legal definition of “descendant” was based on traditional assumptions and cultural norms. Clarification can be beneficial to all clients, not just those who identify with, or whose beneficiaries identify with, the LGBTQ community. Some firms require more than just the names, dates of births, and the family tree. They seek more robust relationship information. It’s also important to discuss a “dead” name or one that may occur in the future. You may consider including the former name and outlining the legal name change or preferred name, if appropriate. You can build this into your process.
This process is newer and evolving and doesn’t yet really deal with any future descendants’ who may have a dead name or other preference. We have seen this model in the cases of charity or organizational beneficiaries. Added verbiage can indicate that if the charity changes its name, the bequest to the charity should not lapse, because it's not uncommon in the charitable world to have a name change. It’s remarkable that we haven't done the same thing for human beneficiaries. We can make simple changes to the boilerplate to account for this eventuality.
Another issue that could arise is with regard to gender-specific gifts. Sometimes, clients want to make specific gifts to a person who may not yet be born. For example, a client wants an engagement ring to be inherited by her first-born daughter, but the client doesn't have any children yet. The client subsequently has two female children. The first child transitions from female to male later life. Then, the second child, being female, claims the ring should belong to her. Another client may make a gift of $100 to each of their “then-living grandsons”. What happens if one of those people transitions to female? Is that person included?
There are a lot of questions about this. It’s advised to be as specific as possible. When clients want to make gender-specific gifts, ask what that means to them and present the range of possibilities in order to reflect their intended meaning.
Some cases may merit making a lot of modifications in a document in order to really address many of the different points covered above. If a practitioner or draftsperson is not comfortable addressing them, or is not familiar with how to address them, it could be difficult and complicated. The cost associated with multiple modifications may not be practical for clients with financial constraints.
Designing systems that offer an easier way for practitioners who are not familiar with drafting for some types of custom issues may prove less expensive. Creating a custom set of provisions for LGBTQ clients may be useful. For example, someone analogous to a trust protector who acts in a non-fiduciary capacity could be empowered to make changes to language in a document to prevent lapses or problems. Alternatively, that person could be given limited or special powers of appointment.
If someone has a relationship with a minor who's akin to being a child, but has not been legally adopted, or is not legally their child but they want them treated as their child, that needs to be made clear in their documents. If not, that person, such in the case of “Mother” in the case study above, would fail to become a beneficiary.
Alternatively, the trust protector with special or limited power of appointment could add that person as a beneficiary as somebody who is treated, for all intents and purposes, by the decedent testator, as a child. Aim to craft a provision and mechanism to you complete many of these tasks in a single clause. Even if you take the long (and better, more preferred) way of drafting specific modifications from the document as a whole, adding this type of provision may be a great backstop; in case something is missed, overlooked, or if an unanticipated circumstance arises.
In general, the definition of descendant is changing, even outside of the LGBTQ community. People are not necessarily married, but still have kids. Planning for all contingencies is prudent and helpful.
There are many different ways and forms that constellate families. There are clients who may have a child with their partner but those people may never get married and may never have adopted the child, but the relationship is there.
Many clients may face a cost dilemma. Gender-confirmation surgery is expensive. Adoption is expensive. A trust may provide for the classic standard distributions for health and education, but may not contain a further definition. For example, what if a beneficiary hopes to adopt a child and the fees are $40,000? The question becomes whether the trust is permitted under its definitions to distribute for the purposes of those costs. Even if the trustee does make the distribution, it’s not unimaginable for another beneficiary to contest such distributions.
For a client who is going through the gender confirmation, the cost can be a challenge. It’s important to indicate what constitutes “health and medical” distributions. Another question may be that of funding for a surrogate pregnancy. The Tax Court has included gender confirmation surgery as a deduction allowed under Code Section 213. Clients could make a limited gift to a loved one for gender confirmation surgery, under Code Section 2503, but the Tax Court has said that a surgery that is cosmetic is not a deductible expense. Clients who contemplate making a gift to help with adoption or other family planning costs may be disappointed to find that it is not considered health care under Code Section 213.
The size and scope of the LGBTQ community more than merits and requires planning firms to be aware of the many specific matters to address when drafting documents, and when executing financial, estate, and insurance planning insurance planning for members of the community.