Navigating the inheritance and retirement planning landscape is already a complex issue for both financial adviser and clients, but it gets even more difficult when it comes to finding provisions for LGBT+ customers.
The older generation in particular, is likely to not have planned effectively for their later life.
“The first step is actually taking that advice,” Irwin Mitchell Private Wealth associate solicitor Hollie Marcham told Portfolio Adviser‘s sister title International Adviser.
“And a lot of financial advisers are white, middle-class, middle-aged males who, perhaps, still aren’t quite comfortable with advising on same-sex couples.”
While many in the industry have highlighted that products are now available to everyone, access to financial advice is still an issue for many LGBT+ clients, Marcham added.
“Just because now all products can be offered doesn’t mean that the advice being tailored by a financial adviser is correct.”
Inheritance and retirement
Often LGBT+ people are the ones most in need of getting their planning right. Many clients believe that just because they are in a civil partnership, married or have been cohabiting with someone for a long time that their partner is entitled to their pension if they die.
That couldn’t be any more wrong, Marcham said.
“Make sure you look at your pension nominations, look at the scheme rules, make sure that you take advice on whether or not your partner is allowed to be nominated, or if you are married, if your spouse will receive that money, and possibly look at some pension planning.”
Failing to file a nomination form can end up with a dispute over who is entitled to that pension pot, she added.
And if the same-sex couple doesn’t have any children, inheritance planning is essential.
Give them flexibility
Marcham believes that LGBT+ clients need a more flexible approach to financial planning than their heterosexual counterparts.
“My view is that they should absolutely be planning jointly and there’s perhaps more the move towards looking at trust structures in a will.
“And [don’t be] scared of that word trust, because there’s so much flexibility in order for trustees on your death to take a step back, look at what money is in the estate, look at what the family situation is and be able to make decisions based on a very detailed letter of wishes.”
Failing to do that could result in leaving your partner with no provisions and then it’s a double whammy if the partner has not been nominated as the beneficiary of the pension fund.
They could be left to applying to a court in order to tap into some of the money.
Insurance to the rescue
Many of those LGBT+ clients who grew up during the 1980s, and lived through the HIV/Aids crisis, may find themselves in an even worse situation, as several cashed in their pension and possible equity releases at the time in fear of not being able to live through that period.
If that is the case, that’s when a life insurance product is needed, Marcham said.
“I think the insurance market is much better now in terms of the fact that you can get insurance.
“And we would always recommend [life products] so that there’s some sort of pay-out. And I always go for the advice of, if there is going to be a pay-out, whether that’s a pension payment or insurance payment, why not look at nominating that into a trust structure.
“You can look at who you need to provide for, and it allows the flexibility to make provisions both for your new partner or perhaps your family or your children.
“And it means that if they’ve lived payday by payday their whole life, and then suddenly a payment is made due to a life insurance product, can they really manage that, or should it be managed by a professional?
“And [if] you put that into a discretionary trust structure, it’s almost like a bypass of their assets. And I think that is something very beneficial.”
Even more difficult for transgender people
Marcham also warned that when it comes to transgender clients, financial planning can become even more complex.
This stems from the fact that when a transgender person receives a gender recognition certificate – the document recognising a legal change in gender – it can impact their tax liabilities and entitlement to their state pension.
“If your gender changes, your tax changes; they’re not in line with each other. And so, you need to take advice.
“It’s just making sure that you’re aware that when your gender changes, your potential tax liability and national insurance contributions could be affected.”
But that is not the only issue, Marcham added. Making sure transgender people have a power of attorney in place is also fundamental in their later life.
“If you lose capacity, and you want somebody to look after and make decisions about your health and welfare, there are special care needs due to gender reassignment and the promotion of wellbeing, such as being kept shaved and maintaining a wig.
They should have “a very detailed letter of guidance to your attorney about what wishes and what your day would look like if you can’t ask for it”.
Step by step
But how can LGBT+ clients navigate all of these issues?
“I think it’s taking advice at each stage,” Marcham said.
If they decide to retire abroad, they need to seek advice in each country, both their home country and the one they are moving to, and to ensure they have received it before they move.
Considering issues such as recognition of their partnership or marriage in that country, what kind of rights a same-sex partner is entitled to in terms of assets and in the event of death, as well as later life care provisions can make a difference, especially considering how relevant these issues are for LGBT+ people, Marcham added.
Last Word is the exclusive industry media partner of LGBT Great, a financial services representative organisation focusing on diversity and inclusion.
- This article first appeared on ESG Clarity‘s sister title Portfolio Adviser.
