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The importance of financial planning for same-sex couples

Planning for retirement. Buying a new home. Stowing money in an emergency fund during uncertain times. Saving for college. Goals are similar whether for same-sex couples or opposite-sex couples. Since the Civil Marriage Act was put in place in 2005, Canada has been making progress towards full equality, providing equal rights and responsibilities for same-sex couples as those of the opposite sex when it comes to financial and estate planning.

“What this means is the sex of your spouse doesn’t have any bearing on taxes, inheritances, benefit plans, or investments,” says Yvonne Waugh, Manager of Business Banking at Coast Capital. “And taking a proactive and holistic approach to money management is crucial for all Canadians since it will help determine a clear financial picture for every stage of your life, down to what happens to your assets after death,” she adds.

But for couples of the same sex, the implications can be different. Here’s what LGBTQ couples should know as they look to successfully managing their finances.

Overcoming the awareness hurdle

There’s often an education gap around financial planning that affects all Canadians, and many LGBTQ households may not be aware of the rules—and their rights—when it comes to financial, tax, and legacy planning. And any members of a union that are complacent about planning a future together can be at financial risk. “There are laws in place, but that doesn’t necessarily mean that everyone is in the same place with their lives,” says Sanaa Elkhattabi, Regional Leader and Licensed Independent Contractor for Primerica, Inc. “Coming out to their families or at work can be difficult for some, so walking into a stranger’s office to discuss their personal financial matters can be difficult as well,” adds Elkhattabi.

A hesitation to disclose personal details coupled with fear or mistrust can damage a relationship with an advisor before it even gets a chance to start. “If a member doesn’t feel comfortable in a meeting with a financial advisor, they are less likely to feel compelled to work with that person on issues of financial and wealth management,” says Elkhattabi.

An important first step is having a financial advisor who is supportive of an inclusive environment and educated on the needs of their clients. “Being proactive and aware of any issues that might affect an LGBTQ member’s retirement, financial planning, or legacy needs is critical,” says Waugh. Asking a question as simple as, “What goals do you have for your family in both the short -and long-term,” can open the door to discussion.

Understanding key factors in same-sex financial and legacy planning

There’s a broad spectrum of activities in financial and legacy planning that all Canadian couples have in common. “Everyone will benefit from being proactive about how they build and protect their assets throughout their lifetimes, plan for major expenses, such as vehicles and mortgages, and save for long-term costs like a child’s education and retirement,” says Waugh. But there are financial tasks same-sex couples might want to put some extra thought into, and they include these five areas:

1. Savings: Just like opposite-sex couples, same-sex spouses need a solid savings plan to achieve their goals—and any of those savings should be protected. So be sure to name your partner as the beneficiary on all of your registered and non-registered financial accounts. This way, there will be no dispute about who has access to the money in the event of illness or death.

One obstacle that couples may not think of that can undermine the best-laid financial plans is the issue of being a partner only under common law—whether you’re a same-sex or opposite-sex couple. Common-law partners don’t automatically have the right of inheritance or may not experience the same access or tax benefits. So be sure to speak to your financial advisor to understand the rules of your accounts.

2. Benefits: Partners are granted Old Age Security (OAS) pension and Canada Pension Plan (CPP) retirement benefits, even if the couple is common law. However, if you file taxes as co-tenants you may have the same problems noted above, proving that your same-sex partner should have access to your benefits. So look to avoid any problems by making your partner the beneficiary, as well as power of attorney in the event of a debilitating accident or illness.

In addition to federal benefits packages, some employers offer plans that can include things like extended medical, life insurance, and corporate pensions. Same-sex spouses have access to these benefits by law—but may not always get them automatically.

For instance, says Waugh, a lag in updating employer policies could result in a blocked payout, as was the case where a surviving spouse whose rightful claim to his deceased partner’s pension was denied. “He was a victim of an archaic system that took too long to recognize that same-sex partners are entitled to the same benefits as opposite-sex couples,” says Waugh. In these types of situations, it can be very tough to make any headway.

3. Life insurance: Life insurance is a key element to estate planning. “A life insurance policy provides a death benefit to the person you designate as your beneficiary,” explains Elkhattabi. “It allows you to make funds available to your loved ones to do things like pay a mortgage, replace your income, send your kids to college, or pay burial expenses after you pass away,” she says. “Your life insurance policy is your partner’s safety net.”

This can’t be said enough: Naming a beneficiary is key. If you have done so the proceeds are not generally considered part of your estate, meaning that they will not go to probate. Preparing in advance to bypass probate can be a big relief for your surviving family.

Life insurance policies also give same-sex couples an extra layer of protection in the event that legal recognition of same-sex marriage changes in any way under federal law, which could affect LGBTQ rights.

4. Children: Provisions for minor children are a top concern. Making sure your children are provided for if anything happens to you is essential—from who their guardians would be to setting up trusts. But take extra care in your planning: “Same-sex couples often use surrogacy or egg and/or sperm donors to expand their families,” says Elkhattabi. It’s not a given that “people will acknowledge that you are the parents of children you are raising if there is no biological relationship.”

Elkhattabi suggests you revisit your adoption and guardianship documentation. Establishing family relationships is a crucial part of estate planning, so consider consulting with a lawyer to make sure your documentation is complete and beyond dispute.

5. Estate planning: Estate planning involves taking proactive steps to protect your wealth and assets and make sure the people you want are the beneficiaries. By preparing your documentationnow, you can rest assured that your wishes will be carried out.

Elkhattabi says that a power of attorney is good but that same-sex couples may want to take further steps. “They might want to consider a separate document to allow their partner to step in to make healthcare-related decisions,” she says. “This is particularly important if the partner’s family does not acknowledge the relationship as they would an opposite-sex union.”

Spouses should also prepare a will. “Having a will is critical if you want to ensure you are the one who decides where your assets go in the event of your death,” says Elkhattabi. If you do not yet have a will, it’s important to prepare one as soon as you can. “If someone dies without a will their estate falls under the intestacy laws of the province or territory in which they are domiciled,” says Waugh. In BC, for instance, there is no distinction between a married or common-law spouse for estate planning, so their spouse will likely inherit everything. “But they will have to go to court to get a letter of administration in order to process the estate,” says Waugh. Check the rules of your province.

The existence of children can change the situation, however. “If there are children, the estate will be divided differently depending on the relationship of the surviving spouse to those children,” says Waugh. The rules are different across Canada, so it’s important for the advisor to know the ins and outs of estate planning.

Being on equal footing for the future

Same-sex couples face all the same challenges as opposite-sex couples when it comes to their financial planning (with perhaps a few extra concerns). It comes down to preparation whether the process ends up being easier or more complex. Talking with your partner about your finances often and early is important so you are both on the same page with your goals.

Working proactively with a financial planner can help. Says Coast Capital’s Waugh: “By asking open-ended questions and letting members take the lead in revealing who they are allows us to give a response tailored specifically to their needs. The hope would be that this becomes normal practice within any company. Individuals should not have to fight for what they are entitled to. That’s why we’re here.”

Contact a Coast Capital advisor to talk about your specific needs.

 

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Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products. Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds.

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