Financial Advisor: How To Plan For LGBTQ, Blended Families, Cohabitation, Other Nontraditional Families

Some people are concerned that the new conservative 6-3 majority on the Supreme Court will roll back protections for non-traditional families. Regardless of the decisions at the Supreme Court, or the impact on the state family courts, there are many ways that non-traditional families can maintain control. This applies not only to the LBGTQ couples, but also for families where there is gray divorce, blended families and stepchildren through non-marital cohabitation, single parents by choice, multinational families, and children born through assisted reproductive technologies (ART). It also includes transgender, gender non-binary, or gender fluid individuals.

The key is drafting for flexibility so that the wills, trusts, and other documents follow the clients wishes rather than leave it to the courts to decide. Here are a few topics that you should consider when drafting:

1. Gendered pronouns and definitions. Drafting to avoid gender specific pronouns is important, ideally you use the individual’s name rather than a pronoun. Also, it is important to draft provisions that explicitly include children conceived by ART. At the same time, DNA testing can result in a child inheriting assets from a parent he or she never knew so clients may decide exclude biological children, parents or siblings who have no relationship with the family. 

2. Powers of appointment. Broaden powers of appointment (POAs) to anyone other than creditors, the estate, themselves or creditors of the estate. The incorporation of POAs into documents adds flexibility to plans but requires clients to come back for more frequent periodic reviews to go over and fine-tune the implications of powers and other concerns.

3. Trust decanting/trust protector. Consider provisions that explicitly allow for trust decanting (transferring trust assets into a new, different trust) and that allow a trust protector (a non-fiduciary appointment of a third party) to make amendments. This takes some thought as to who should hold the protector powers and the impact on the overall plan.

4. Marriage, divorce, remarriage, and non-marital relationships. Because we cannot predict the future, the planning has to deal with the future marriage, divorce, and non-marital partners with flexibility and precision, as well as protection of family privacy, such as by limiting the information included in wills, which will become public documents.

5. Prenuptial agreements. Prenuptial agreements should be considered for any marriage. State law varies on just what is procedurally necessary for an enforceable agreement, but typically requires that the agreement be voluntary, not unconscionable and includes full disclosure of both parties’ financial affairs.

6. Planning during marriage. Couples frequently seek to engage in joint estate planning and should discuss protection for all children, joint or otherwise, establishing joint trust that become irrevocable at the death of the first spouse and deals with the statutory elective share.

7. Divorce. Issues such as beneficiary designations for life insurance, IRAs and other non-probate assets, wills and trusts are all affected by divorce. Most states' laws will automatically revoke any revocable instrument (including a will) with respect to any  bequest to a former spouse and, increasingly, bequests to family members of the ex-spouse. The best practice is to take affirmative steps to ensure that if an ex-spouse is no longer to be a beneficiary that they are removed as beneficiary. Especially since revocation-upon-divorce statutes do not cover pension and insurance plans that are subject to ERISA.

8. Cohabitation. A big difference between a cohabitant and spouses is that while marital gifts are tax-free, (so that the surviving spouse can inherit any amount of the decedent spouses' estate tax-free) that is not true for a non-marital cohabitant.

9. Cohabitation/non-marital partner agreements. A cohabitation agreement protects a client  in a similar manner to a prenuptial agreement as well as how any expenses incurred during the relationship, such as mortgage or rental payments, should be treated. If each cohabitant wants to change beneficiary designations on retirement accounts or insurance plans, then those could also be covered as well as how, if there is a joint child, custody agreement, subject to a court's consideration of the best interests of the child.

10.Advance medical directives. Clients should specify the type of end-of-life medical treatment they want in a living will or similar document: Do they want tube feeding, for example. A second decision, particularly important where the client has remarried or has a non-marital partner, is choosing who to authorize to make health-care decisions on the client's behalf through a health-care power of attorney. Note that when an individual is hospitalized, stepparents may cut off access and information to their spouse's children, or children may cut off access to a stepparent as happened in celebrity Casey Kesem's end-of-life situation.

Clients may also want a do not resuscitate (DNR) or Physician Orders for Life-Sustaining Treatment (POLST).

A related concern is death and burial issues. A client should consider disputes between a surviving spouse and stepchildren and specify their wishes in writing. Fights at death are not just about money but can also be about where someone is to be buried, what rituals attend the burial, and even just where family members should be seated.

With non-traditional families becoming more common, everyone—not just single-sex couples—needs to consider how best to build in flexibility and certainty with estate planning and documentation. Issues of control over assets and beneficiaries of assets, as well as more personal issues regarding custody of a child, health-care decisions and even access to a gravely ill partner, also need to be considered.