Wall Street Sees Opportunity in Demise of DOMA

Hopefully, the U.S. Supreme Court will release it opinion later today striking down DOMA, the Defense of Marriage Act, which codified Christianist anti-gay bigotry into the federal law.   Even if the Court demonstrates a lack of spine and courage and falls to strike down bans on gay marriage nationally, should DOMA fall much will change in the legal landscape for same sex couples, albeit the impact will vary from gay friendly to anti-gay states like Virginia.  Wall Street and financial advising firms somewhat belatedly are recognizing that there is money to be made in courting same sex couples.  Some, like myself, have been working with gay and lesbian couples for a number of years on estate planning issues.  A piece in Politico looks at this recognition of the LGBT market.  Here are excerpts:

The Supreme Court’s long-anticipated ruling on the Defense of Marriage Act will provide some clarity about a fast-growing practice for banks: financial planning for same-sex couples.

The country’s highest court is expected to hand down a landmark opinion as early as Monday on a section of the law that denies married same-sex couples the same federal rights and benefits as married heterosexual couples.

“In terms of financial planning and advisory to the [lesbian, gay, bisexual or transgender] community, it does muddy the waters,” said Eric Berger, a relationship manager and founder of the LGBT Private Banking Initiative at Credit Suisse — one of many banks that began offering specialized financial planning services for the LGBT community in recent years. “The uncertainty causes a bit of paralysis from advisers because on the legal side … basically any planning that you do now, you may have to redo.”

As a number of states across the country have legalized gay marriage, Wall Street has emerged as an ally for gay rights advocates.

Prominent banking executives, including Goldman Sachs CEO Lloyd Blankfein, have spoken out in favor of same-sex marriage and an LGBT-friendly work environment. Large banks — including Goldman, Citigroup and Morgan Stanley — were also among the hundreds of companies that filed a brief earlier this year urging the Supreme Court to overturn DOMA.

And as momentum for gay marriage has gained traction, banks have seized on the changing landscape to attract high net-worth same-sex couples with custom-made financial planning services.

Scott Squillace, the founder of the law firm Squillace & Associates in Boston, which specializes in estate planning for same-sex couples, said he has noticed a marked change among banks across the country over the past decade.  “All of the banks large and small have woken up to the fact that this is a terrific demographic to market to,” said Squillace

A division of Bank of America’s Global Wealth and Investment Management group provides educational tools and materials for LGBT clients on issues ranging from estate, financial and retirement planning. 

Morgan Stanley is also ramping up its services for same-sex couples. It currently offers financial planning seminars to both advisers and clients, and plans to enhance its financial planning desktop software to accommodate wealth management for domestic partners by the end of the summer.

[I]f the Supreme Court overturns Section 3 of DOMA, the decision will present many couples with an important financial decision of their own: to wed or not to wed. From a legal and tax perspective, there is a long checklist of pros and cons.

 For example, there are no gift or estate taxes between spouses, so married couples can give each other an unlimited amount of money while alive or as part of their estate without having to pay Uncle Sam.

Not all of the benefits are necessarily positive. Low-income seniors who are eligible for Medicaid could receive federal assistance for nursing home care, but when considering eligibility, the federal government looks at a married couple’s combined income and assets, making it harder for an individual to qualify.

If the Supreme Court rules DOMA’s Section 3 is unconstitutional, same-sex couples would be poised to eventually receive the same federal marital benefits as opposite-sex couples in states where gay marriage is legal.

I will be speaking at a seminar hosted by Wells Fargo Financial Advisors on July 10th which, you guessed it, targets the LGBT market.

Gay Or Straight, Marriage Matters -- For Taxes

I have had to educate a number of candidates on the issue of why the word "marriage" means so much to LGBT Americans. It's not just because civil unions are a framework of "separate and unequal" - of course, here in Virginia, we don't even get that right to be unequal. No, where the rubber hits the road comes from the fact that so many laws, especially tax laws, use the word "marriage" in dispensing benefits and rights. In terms of taxes, not being able to marry causes LGBT citizens to pay more in income taxes - even though we receive fewer civil rights - and more in the estate tax realm as well. Rubbing salt into the wound is the fact that same sex couples are punished solely because they do not live their lives per the Christianists' religious beliefs. Robert Woods, a tax attorney (pictured above), has a piece in Forbes that looks at this reality and why marriage matters in terms of hard dollars and cents. Here are highlights:
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It may sound myopic, but as a tax lawyer for 30 years, I tend to think of taxes first in all things. Even marriage. The gay marriage debate raises big issues, but I find taxes at the front and center of them. As a number of states and the IRS move to address marriage tax issues, you might think the main issue would be whether same-sex couples can file joint tax returns.
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Yet marriage has a whole host of tax issues, in addition to joint filing. Some of these issues can make the denial of joint filing look like small potatoes.
In fact, the biggest tax issues often come up on the unraveling of a marriage. Whether a couple is heterosexual or gay, the tax aspects of unraveling a relationship are very different inside and outside marriage. You might be shocked how these tax rules work.
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If you're married, there's no limit on the amount of money or property you can transfer back and forth between spouses. There's no gift tax and no limit (except in those instances where the spouse getting the assets isn't a U.S. citizen). If you're not married, you are limited to $13,000 per year tax free. Any gifts beyond that trigger an immediate gift tax or eat into your lifetime gift-tax exemption of $1 million. If you use the gift tax exemption it reduces, dollar for dollar, the amount you can pass on estate tax free to heirs at your death, and most people prefer saving the exemption for their estates. (While the estate tax has lapsed for 2010, under current law the estate tax exemption will be just $1 million come Jan. 1, 2011.
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A divorcing couple can divvy up property tax free. Again, there's no limit. So if you jointly bought a house, you can transfer your interest to your ex without tax. Not married? In that case, you'll likely face income or gift taxes. If you give your half of the house to your ex-partner and receive nothing in exchange, you've made a taxable gift.
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Suppose you're not feeling that generous and instead are deeding your half of the house to your ex in exchange for some of your ex-partner's stock holdings? Then you both could be hit with income taxes.
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If you look at a many-year relationship with significant assets, the taxes at stake can be enormous. In fact, the tax bill can be so big that in some cases, unmarried couples trying to untangle joint assets might consider getting married just so they can then qualify for the benefits of a tax free divorce! . . . .Of course, gay couples can only do this where marriage is permitted, since the tax law requires a valid marriage--even if it is a sham marriage for purposes of qualifying for a tax-free divorce.
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Despite my focus on tax law, I realize the non-tax aspects of marriage are considerably more important than the tax aspects. Nevertheless, as you can see, taxes matter a great deal, especially if you have to unwind a relationship.

Why Estate Planning Documents Are Crucial

At dinner with friends the other night our hosts and the boyfriend recounted the horror story of a same sex couple where one became very ill and ultimately died. Most of the couple’s assets were in the name of the deceased partner and the surviving partner lost almost everything, including his home and a business that he had helped build. In fact, he had to prove in court which assets he had purchased in his own right in order to have them not incorporated into the deceased partner's estate that went only to his blood relatives. These kinds of nightmares happen with all to frequent regularity. Meanwhile, they CAN be avoided through proper estate planning documents. I have set out below an article I put together on this topic for my LGBT clients (NOTE: While the article deals with Virginia law, the concepts are generally applicable in other states):

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ESSENTIAL LEGAL DOCUMENTS FOR LGBT COUPLES
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There are some things same-sex couples can and should do to provide for some of the legal protection automatically conferred on married couples. Unfortunately, far too many such couples fail to take the relatively simple steps to avoid the adverse and/or unexpected effects of current law.
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NECESSARY DOCUMENTS AND STEPS: There are some basic documents and steps that every unmarried couple and every same-sex couple should have prepared and duly signed. These include:
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Will - A will specifies how you wish your property to be distributed upon your death. In a will, you designate the person you wish to handle your estate -- your partner or another individual. Without one, your partner receives absolutely nothing. Pursuant to § 64.1-46 of the Virginia Code, anyone who is over the age of 18 years and not mentally incompetent may make a will and thereby dispose of any estate to which he shall be entitled, at his death, including any estate, right or interest to which the testator may be entitled at his death, notwithstanding he may become so entitled subsequently to the execution of the will. Inasmuch as neither § 64.1-46 or other provisions of the Virginia Code restrict permitted devisees to spouses or blood relatives, both unmarried heterosexual couples and same-sex couples may make wills leaving assets to their partners.
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Trust - A properly established and funded trust avoids publicly probating assets owned by the trust at the time of one’s death and is more difficult to challenge in court than a will. In addition, a trust can provide beneficiaries with creditor protection in certain circumstances. Properly structured, a trust can provide support for one’s surviving partner for the remainder of his or her life, with the remainder to pass to other relatives and designated beneficiaries, bypassing potential taxes associated with the surviving partner's estate. Chapter 4, Title 26 of the Virginia Code governing the appointment, qualification, resignation, removal of fiduciaries, including trustees, contains no provision restricting permitted trustees or trust beneficiaries to spouses or blood relatives. Therefore, both unmarried heterosexual couples and same-sex couples may create trusts naming their partners as beneficiaries in a manner that does not purport “to bestow the privileges or obligations of marriage.”
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Medical/Health Care Power of Attorney - A health care or medical power of attorney allows one’s partner regardless of gender to make medical decisions on your behalf in the event you are not able to do so due to incompetency or other incapacity. Properly drafted, a health care power of attorney can also ensure hospital visitation rights to the designated attorney-in-fact
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Advanced Medical Directive - § 54.1-2983 of the Virginia Code provides that any mentally competent adult may, at any time, make a written advance directive (i) authorizing the providing, withholding or withdrawal of life-prolonging procedures in the event such person should have a terminal condition, and (ii) appointing an agent to make health care decisions for the declarant under the circumstances stated in the advance directive if the declarant should be determined to be incapable of making an informed decision. Advance medical directives must be signed by the declarant in the presence of two subscribing witnesses who cannot be the spouse or blood relatives of the declarant.
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There is no statutory restriction that one’s agent must be a spouse or blood relative. Rather, §54.1-2982 of the Virginia Code provides that under any such advance medical directive, an agent means “an adult appointed by the declarant under an advance directive, executed or made in accordance with the provisions of § 54.1-2983, to make health care decisions for him. . ." Such authority includes visitation rights, provided the advance directive makes express provisions for visitation. Therefore, properly drafted and executed advanced medical directives by a same-sex couple should not be deemed to “bestow a privileges or obligations of marriage.”
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General/Business Power of Attorney - This form of power of attorney allows a member of either an unmarried couple or a same-sex couple to authorize their partner to handle their financial affairs in the event of disability or unavailability.
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Title on Deeds and Accounts - How title to property is held can effect both future ownership and tax liability. Joint tenancy with rights of survivorship, for example, will ensure that the surviving partner will have full ownership upon the death of the deceased partner and avoid ownership disputes with surviving blood relatives. However, it can create certain negative estate tax treatment depending on the size of one’s taxable estate. Historically, deeds creating a tenancy by the entirety have been reserved for husband and wife couples. In light of the Virginia Affirmation of Marriage Act cited above, such a deed conveying title to a same-sex couple even though validly married in another state such as Massachusetts would not be effective in Virginia.
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BENEFICIARY DESIGNATIONS: Most securities and retirement accounts provide for the designation of beneficiaries. These should be reviewed periodically to ensure that desired goals are achieved and also should include the designation of contingent beneficiaries to ensure the desired parties are named in the event of the death of the principal beneficiary.
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LIFE INSURANCE: Properly utilized, life insurance can provide funding for payment of estate taxes, outstanding mortgages, charitable trusts, education of minors, and other functions.
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NOTE: This article contains a general discussion of estate planning matters which vary greatly in asset structuring needs and potential tax liability based on the particular facts and circumstances of individuals and the nature of their assets. Therefore, it should not be relied upon as a substitute for individualized legal advice addressing one’s particular situation.

A Fiancee Left in Limbo

Back in 2006 when The Family Foundation (James Dobson's Virginia affiliate) vigorously pushed for passage of the so-called Marshall-Newman Amendment to "ban same sex marriage" in Virginia, one important aspect of the discrimination being written into Virginia's Constitution was deliberately down played: the amendment would not only strip same sex couples of all marital like rights, but it would do the same for non-legally married heterosexual couples.

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Today many straight couples who have co-habitated in some instances for many, many years still do not realize that should either one of them die, thanks to the Christianists, they will have ABSOLUTELY ZERO rights to their partners assets, retirement, etc., unless they have proper wills in place and held title to assets as joint tenants with right of survivorship. This result is part of the larger Christianist goal to legally punish all those who do not marry or otherwise live their lives according to Christianist religious beliefs. A story from the Washington Post about the fiancee of a member of the U.S. military hopefully will wake some people up to this reality:

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So much now depends on the ring. For Kyle Harper, there are few other signs remaining of the life she should have had with her fiance. For the longest time, she kept the diamond engagement ring on her finger. It proved what the world at times refused to acknowledge: that she had mattered to Sgt. Michael Hullender.

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When Michael was killed on a dusty road in Iraq, Kyle, now 27, got her first inkling from a roommate who told her Michael's parents had called. There was no knock on the door, no official phone call or notification. Later, when she tried to obtain the things he left behind -- an old T-shirt, his dog tags, little mementos from his quarters -- she found herself floating in legal limbo, with no rights to his effects or his name.

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[O]nly the marriage certificate counts. As a result, the military had to treat Kyle the way it does all fiancees -- as though she had no relationship with Michael. All the Army could offer were condolences. There would be no grief counseling, no casualty pay, no say in his burial. Those rights fell to his next of kin. And even there, after his death, a few in his family sided with the military. After all, they pointed out, they had known Michael his whole life. She had met him only in his last years. Rifts formed. Words were exchanged.

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[A]n obscure 2004 survey by a West Point researcher estimating that 25 percent of soldiers in Iraq have "significant others" who are not spouses. The stories behind those numbers vary along with each couple's reasons for not tying the knot. Some simply aren't ready; others don't believe in the institution.

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When someone is killed like that, she said, a strange impulse creeps up among the survivors to rank their pain against one another's: father, best friend, sister, fiancee. It's a pointless exercise, though. In the end, everyone loses.

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It is a sad story made even sadder by the fact that proper legal documentation could have insured that Kyle would not have treated as a total legal stranger to Michael.