Financial advice for LGBT couples

LGBT couples can take advantage of life insurance for their financial and estate planning needs. In fact, according to a recent study of the lesbian, gay, bisexual, and transgender (LGBT) community, more LGBT Americans now own a life insurance policy than a savings account.1Life insurance can be an effective way to provide a surviving spouse with the funds to help make up for lost income due the death of his or her spouse. That money might be important, too, for paying for other financial commitments such as children's educations or paying off a mortgage. And due to anti-discrimination laws, there should be no underwriting differences for LGBT individuals compared to heterosexuals.2However, like many aspects of wealth planning in today's evolving LGBT environment, there are several elements of the life insurance discussion that warrant special attention for LGBT couples, whether married or not.1. Group policy caveatsMore than half of U.S. employers offer employees the opportunity to buy life insurance on their spouse through a group policy.3 This is good news for legally married couples—as long as the group policy is covered by the federal Employee Retirement Income Security Act (ERISA). Also, some employers extend group policies to domestic partnerships. Your employer's Human Resources department should be able to give you details.2. Federal estate tax exclusion and unlimited marital deductionDue to the unlimited marital deduction, legally married couples can transfer an unlimited amount of assets between each other during their lifetime or upon death.In addition, these couples now have access to a total of $23.4 million in combined federal estate tax exclusions ($11.7 million per spouse in 2021) if they wish to transfer assets either outright or in trust for children or other beneficiaries. Since most couples' assets, including a life insurance policy death benefit, would be less than that threshold, federal estate taxes may not be a concern. You should check with your tax advisor about your situationThe unlimited marital deduction benefits, however, are not available to civil unions or domestic partnerships, and state estate and gift tax rules may still be a consideration.3. Insurable interestLGBT couples without a legal marriage certificate may still be able to get life insurance with their partners as beneficiaries if they can demonstrate an "insurable interest." In general, an insurable interest means that one person would be dealt a substantial financial blow if the other person dies.2 Insurable interest rules vary by state, but in many instances, if a couple owns a home together, that may be enough to prove insurable interest.4. Business continuityIf the members of a couple are also business partners, life insurance should also be considered as a business succession and continuity planning tool. In this instance, life insurance could be used for a buy-sell agreement or to simply provide the liquidity needed to continue the business when a key person has died.For example: If business partner A dies, and business partner B has a policy on the life of partner A, the policy gives cash to partner B to pay the heirs of partner A for A's percentage of the business.5. Irrevocable life insurance trustsFor unmarried LGBT couples, they may be able to use a strategy employed by married LGBT couples—called an irrevocable life insurance trust. 2 The insurable interest rules still apply. Ask your financial advisor for a copy of our free report "Irrevocable Life Insurance Trusts" for a detailed discussion of how this type of trust might fit within your estate plan.Not sure where to start?There are many different kinds of life insurance, and the details can be complex, especially as tax laws change. So be sure to speak with your tax, legal, and financial advisors about your unique financial needs and challenges.How much do you need?Every situation is different when it comes to how much life insurance you should have—and policy purchases should be based on specific needs.To learn more about determining your life insurance needs, request a free copy of our report, "How much life insurance is enough?" from us.Wells Fargo Advisors does not offer tax or legal advice.1. The LGBT Financial Experience, 2016-2017 Prudential Research Study2. "New Strategies for Same-Sex Life Insurance: Same-sex couples tend to be younger, more affluent and buy low-cost term insurance," by Alan Lavine, WealthManagement.com, posted July 15, 2014, http://wealthmanagement.com/insurance/new-strategies-same-sex-life-insurance, accessed May 12, 2015Insurance products are offered through our affiliated non-bank insurance agencies of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.This article was written by/for Wells Fargo Advisors and provided courtesy Paul K. Parson CIMA®, Managing Director – Investments.Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUEWells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.© 2020 Wells Fargo Clearing Services, LLC. All rights reserved.