Retirement

LGBTQ+ Estate Planning And Pride Month

Introduction

Estate planning sometimes addresses the special needs of lesbian, gay, bisexual, transgender, and queer (“LGBTQ+”) people, or those who have family members in the LGBTQ+ community. Statistics demonstrate the reality that the number of people undertaking estate planning for whom LGBTQ+ considerations should be incorporated is growing. This article will provide an overview of some of the many planning and document considerations. This will include an explanation of a novel technique that may prove helpful for some LBGTQ+ people, especially given some of the changing tides in attitudes and law. There are risks that federal policies that prohibit discrimination on the basis of sexual orientation and gender identity could be rolled back. As such, the mechanism suggested might warrant broader use. This article will also suggest a completely different approach to when LGBTQ+ issues should be addressed in estate planning.

Finally, for some engaging in estate planning, they expressly may not want to wish to address LGBTQ+ matters in their planning or documents as they may view that as contrary to their religious or other beliefs. That will briefly be addressed as well.

LGBTQ+ Planning Should be Routine for All Plans

As suggested above, LGBTQ+ planning considerations tend to only be addressed for those in the community or family members planning for descendants who are LGBTQ+. Perhaps the time has come to make at least some LGBTQ+ planning considerations routine and ubiquitous in estate planning. The trend for many years is to favor distributions to heirs in trust rather than outright. That may preserve asset protection, divorce protection and tax benefits. The trend has also been for those trusts to last as long as applicable law permits. The old-style trust that ended at age 25 or 30 has not been nearly as common, and from a planning perspective rightfully so. With so many bequests then being made in long term trusts the odds are likely when you consider the statistics below, that many families, perhaps most, at some point in the future will have LGBTQ+ heirs. If simple steps can be taken to better protect and care for those heirs, that should be done. If those steps become commonplace in standardized forms, only modest extra thought or cost will be necessary to address these matters when they become relevant. More importantly, more estate plans and documents will be prepared to compassionately address issues that may arise.

Contrast How Special Needs Planning is Handled Versus LGBTQ+ Planning

Perhaps it is time that estate planning, which in many ways remains mired in the antiquated social paradigms, like the misconception in so many articles and treatises that the typical family resembles the Cleavers (not even close for decades). Let’s do so by contrasting supplemental or special needs planning for special needs beneficiaries.

It is common and routine, although not ubiquitous, that estate planners include provisions to address special needs beneficiaries, those with an array of disabilities, those who may qualify for governmental assistance programs and therefore require special trusts to avoid having assets earmarked for such beneficiaries reached by the government, or worse disqualifying that person from receiving essential governmental services. That seems to be compassionate and prudent planning. Many attorneys include these provisions in all their forms regardless of whether there is a known special needs beneficiary, but rather merely to protect future beneficiaries “just in case.” Perhaps it is time that a similar approach be used with LGBTQ+ planning. Even if there is no known LGBTQ+ family member, routinely include some of the modifications and provisions “just in case.” There is often no way of knowing the status of every current family member. Current family members may not have revealed their sexual orientation or transgender status for a variety of reasons. It is impossible to predict the status of future family members.

Statistics on the growth of the LGBTQ+ community suggest that the above approach is long overdue.

Stats on Special Needs Children Contrasted with LBGTQ+

Despite the prevalence of individuals who identify as LGBTQ+ in the US population, very few people include any LGBTQ+ planning in their estate plans. However, Supplemental Needs Trusts (“SNT”) are regularly planned for despite a comparatively less number of people affected. But please don’t read this as in any way diminishing the importance of planning for special needs children and all people living with chronic illness, disabilities, etc. That is not the intent nor the point.

The CDC says that average likelihood of having a special needs child is about 1.7%. In 2022–23, the number of students ages 3–21 who received special education and/or related services under the Individuals with Disabilities Education Act (IDEA) was about 7.5 million, or about 15 percent of public-school students. The prevalence of any diagnosed developmental disability in children aged 3–17 years was 8.56% in 2021.

The stats for those identifying as LGBTQ+ are higher and growing. The Pew Research Center found that 17% of Americans aged 18-29, 8% of Americans aged 30-49 years old, 5% of Americans aged 50-64, and 2% of Americans aged 65 or older self-identified as lesbian, gay, or bisexual. The percentage of American’s who consider themselves part of the LGBTQ+ community has seen a steady increase. According to Gallup 7.6% of Americans identify as LGBTQ+, compared to 3.5% in 2012 and 5.6% in 2020. Gallup concluded that each later generation is almost twice as likely as the preceding generation to identify as LGBTQ+. If the trend line continues the percentage of the population that is LGBTQ+ will grow substantially over time. Even if there is no growth, but the percentages of younger age cohorts continue into the future, the 17% rate may be predictive of the future overall population percentage.

The need for LGBTQ+ provision exceeds and will continue to exceed the need for special needs provisions. Including special needs provisions is routine in estate planning documents. It is time that planning for the LGBTQ+ community be treated the same way.

Planning Concepts to Address in Document

There are a number of planning steps, provisions and approaches that might be integrated into an estate plan to address needs of current or future LGBTQ+ beneficiaries. Some of the many special estate planning issues that might need to be addressed might include: (1) defining who is a beneficiary, (2) the affects of a name or gender change, and (3) expenses that a fiduciary can cover including, for example, transition costs.

Consider Flexible Distribution Standards in Trusts

Generally, the more flexibility included in a trust the greater the likelihood that these and other issues can be addressed. Giving a trustee wide latitude to make distributions of income and principal to current and future beneficiaries increases the likelihood of a trustee being able to address these and other needs of beneficiaries. Thus, a discretionary trust in which the trustee can exercise discretion to make distributions may be preferable to a trust that mandates, for example, distributions of income, or a trust that limits distributions to a health, education, maintenance and support (“HEMS”) standard. The HEMS standard is commonly used so that a beneficiary can be a trustee, make distributions to themselves limited by that standard, and yet the assets should remain outside that beneficiary’s estate and unreachable by the beneficiary’s creditors. A fully discretionary standard requires an independent trustee, but provides more flexibility and should be safer from the reach of creditors.

Can Transition or other Medical Expenses be Paid?

Medical and other expenses might be costly. Will they be covered? Will a fiduciary (e.g., trustee under a trust) be permitted to pay for them? If a trust defines permissible medical expenses based on federal income tax law definitions of what constitutes a deductible medical expense, costly and important cosmetic and other procedures for an heir going through transition may not be able to be paid. One approach to address this is to include a broad discretionary distribution standard as described above.

Who is a Beneficiary?

How estate planning documents define who is included in the definition of “children,” “descendants,” and “beneficiaries” is critical. Traditional or historic definitions are often too limiting for LGBTQ+ beneficiaries. Children might be adopted or born through surrogacy and traditional definitions may not suffice. State law default laws (rules that apply if your legal documents don’t provide other rules) may also be too narrow. Thus, including broader definitions that encompass potential scenarios should be considered. It is possible that only one parent, or perhaps neither parent, will be biologically related to a child. You want to avoid language that could exclude as beneficiaries the people you love and raise as your child.

Name or Gender Change

If you or another beneficiary undergoes a change in name or gender might that negate the bequest to your or your status as a beneficiary? For example, consider a beneficiary who changes their name from “Tina” to “Tom.” Will a bequest of “My Rolex to Tina” lapse? Consider a scenario in which the testator’s oldest daughter has gender confirmation surgery and transitions to male. Will a bequest of “My Rolex to my oldest daughter” lapse? The answer is not always clear so legal documents might address that by expressly providing that such changes do not negate someone’s status as a beneficiary.

Letter of Wishes

A detailed letter of wishes to the fiduciaries (executor, trustee, etc.) explaining one’s wishes and doing so with compassion, breadth and recognition of evolving medical treatments and societal norms may be helpful .

A Special Trust Adviser and Holder of a Limited Power of Appointment

To reduce the risks of an intended heir being inadvertently excluded as a beneficiary, or a beneficiary not receiving financial assistance that might be needed (e.g., the instrument is unclear, the trustee objects to the beneficiary’s lifestyle, etc.) a special trust protector role, coupled with a limited power of appointment, might provide a remedy. It may be difficult for a trustee to add a beneficiary, or pay for very costly medical or other expenses. That could be because the trustee has a fiduciary duty to the other beneficiaries that might be compromised. Perhaps naming a person who is expressly designated as not acting as a fiduciary and providing them the right and power to add persons as beneficiaries, or reconfirm a bequest that might otherwise lapse because of a name or gender change, could solve the issue. Further, the person designated in that capacity could be chosen by the trust protector or trustee named in the will or trust for their knowledge and sensitivity to the LGBTQ+ considerations that might be involved.

Those Who Do Not Wish LGBTQ Provisions

Some people engaging in estate planning may wish to take the opposite steps to the above and to intentionally disinherit or exclude anyone who pursues a lifestyle that they find objectionable from a religious or other perspective. Some might not wish to exclude a beneficiary that identifies as LGBTQ+ but perhaps may not wish language addressing that in their documents. Some might find the suggestion that LGBTQ+ provisions be made ubiquitous in most estate planning documents uncomfortable. For example, some view the use of invitro fertilization as inappropriate as they equate embryos with life. For those with that belief, the definitions of “children” in a will or trust may need to be modified. They should be informed of that. When such people engage in estate planning they might want to expressly provide that each of the steps or mechanisms suggested above not be used. But some, perhaps many, of the suggestions above may be implemented and worded generically. For example, favoring discretionary flexible trusts is something that makes sense from a tax and asset protection perspective. So, some of the changes may not be noticeable or problematic. Others, such as a special trust protector, may be. Those not wishing identifiable LGBTQ+ provision should then advise their estate planners to remove or not include such provisions.

While each person has the right to bequeath their wealth how they choose (subject to requirements to provide for a spouse and minor children, for example), perhaps some of the following questions might be considered by anyone who considers expressly disinheriting because of that heirs lifestyle, religion, or other factors:

· Instead of the harsh step of disinheriting a family member consider naming a trustee who understands your beliefs or concerns and lets them decide at some future point what should be done. That might conform to your wishes but leave the door open to that beneficiary.

· Consider how you might feel if you disinherited a loved one and they suffered a terrible accident or contracted a terrible illness. Would you not wish to at least help them with medical or other expenses? Fully disinheriting them would preclude that. If instead they are included as a discretionary beneficiary, the trustees you name can, as noted above, make decisions consistent with your wishes but also be able to help them in urgent situations.

· What if you changed your mind, or the person involved reconciled with you, on your death bed. It would be too late to change your will or trust. Is that what you want? Is excluding someone really the choice you would make with that in mind?

If the estate planning changes as suggested above, then those with opposite views will need to be alert to modify their documents accordingly. But hopefully they will choose to do so in a compassionate manner.

Conclusion

Because of the substantial and growing size of the LGBTQ+ community the default approach to estate planning should evolve to address some of the special considerations that might be necessary or helpful. With estate planning focused on long-term trusts for heirs, the likelihood of an LGBTQ+ heir is significant, especially when a dynastic view of planning is considered. This article has suggested some of the special steps that everyone might wish to integrate into their planning.

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