Monday, August 27, 2007

Same-sex and Worried about Retirement

Same-Sex And Worried About Retirement

By Martha M. Hamilton
Sunday, August 26, 2007; F01

Ken Hausman and his partner, Deane Bergsrud, have been together for 27 years, and like many couples their age, they're thinking ahead to retirement. They both have 401(k) plans at work and individual retirement accounts, and Hausman has a pension.

Nonetheless, "we worry a great deal about the future," Hausman said.

One of their worries is whether the surviving partner will be adequately protected when the other dies -- because of their unmarried status.

Unmarried couples lack the automatic legal protections that kick in when one member of a married couple dies. And they lack other advantages in planning for financial security in retirement that are taken for granted by most couples.

But marriage is a solution that is unavailable to Hausman and Bergsrud. They live in Virginia, where marriage is prohibited for same-sex couples, as it is in most of the United States.

Together they make a decent income that has allowed them to save for retirement, and they have little debt. But they worry whether they have done everything they need to do to ensure that one won't be left with too few assets after the other dies. Compounding their worries is a Virginia law that prohibits civil unions or other marriage-like contracts between same-sex partners.

The law is being challenged, but as long as it's on the books Hausman says he worries that the wills and powers of attorney, and other measures they have taken to protect each other, could be ruled null and void.

"There's no substitute for being married when it comes down to it," he said.

In terms of their 401(k)s and IRAs, the two think they are in good shape. Each has named the other as the beneficiary of the savings accounts. But Hausman, associate editor of Psychiatric News, also has a traditional pension. Normally workers with traditional pensions can choose at retirement whether to take the full monthly payments or a reduced amount each month in order for those benefits to continue for a spouse's lifetime, should the pension beneficiary die first.

It's a benefit considered so important for the surviving spouse that he or she has to sign a waiver for the worker receiving the pension to qualify for the higher benefits. But pensioners in same-sex couples can't leave survivor benefits to their partners.

Legal experts from the gay and lesbian community say that is just one of many ways in which financial planning for retirement is complicated for same-sex couples. Other examples were given by Susan Sommer, senior counsel for Lambda Legal; Joan M. Burda, who wrote "Estate Planning for Same-Sex Couples"; and Michael Adams, executive director of Senior Action in a Gay Environment:

* Social Security. There are no survivor's benefits available to members of a same-sex couple, nor can a low-earning member of a same-sex couple get the boost in benefits available to a married couple when both of them are alive. If one member of a married couple is receiving less from Social Security than his or her spouse, the survivor can draw 100 percent of the dead spouse's benefit, if he or she is old enough to draw full Social Security benefits. This is true for ex-spouses, too, if the marriage lasted 10 years or longer.

Members of married couples also receive a one-time death benefit of $255 after their spouses die.

Also, if one member of a married couple has never worked or has low earnings, that spouse can be entitled to as much as half of the full retirement benefit produced by the higher-earning spouse's record.

* Property ownership. Married couples can own property as tenants and can automatically pass it on to the surviving spouse without the expense and hassle of probate. A certain amount of personal property, such as furniture or artwork, also automatically transfers. Sure, an unmarried couple may will each other property, but that makes it potentially subject to the estate tax, although that's currently not a problem for most people because it kicks in for only high-income families. A married person also may shift assets to a spouse without it being considered a gift and potentially subject to tax.

Another concern about wills is that they can be, and often are, challenged by hostile family members. "There's the lack of ease of the safety net that comes with automatic inheritance," Adams said. He also noted that "the vast majority of Americans don't have wills. The vast majority of gay and lesbian couples don't."

* Long-term care. To qualify for long-term care under Medicaid, individuals need to demonstrate that they have few assets. A married couple isn't forced to sell the house to cover expenses as long as one member still lives in it. Unmarried couples don't have that protection. This is a concern for Hausman and Bergsrud, since Alzheimer's disease runs in Bergsrud's family. One possible solution, according to Burda, is to buy a long-term-care insurance policy that covers five years' care. When determining whether someone qualifies for Medicaid coverage, states look back five years at an applicant's assets. With the five-year long-term care policy, the member of the couple requiring care could transfer his or her share of the home to the other partner, be covered for five years by the policy and then qualify for Medicaid coverage.

* Health insurance. Some companies provide health insurance coverage to domestic partners, although it's treated as taxable income. In some states, only one member of a same-sex couple is allowed to be the legal parent of the couple's child or children. Only that parent will be able to cover a child under employer-provided health insurance. Often that means that the insured parent will feel he or she can't retire or change jobs because it would result in the loss of dependent health insurance, Susan Sommer said.

And so it goes. Same-sex couples also may need to save more for retirement because of other expenses. They often don't qualify for discounts routinely available to married couples, ranging from lower rates for a gym or a swimming pool association or for auto insurance, for instance. Hausman and Bergsrud have one car and pay for more expensive business auto insurance so they can have both names on the policy.

They should shop around, said Burda, who added that Liberty Mutual and some other companies don't discriminate against unmarried couples. And there are ways to work around many of the other problems that such couples confront, she and others said. But obtaining what comes routinely to married couples may involve lawyers and financial planners and more money out of pocket.

And less money for retirement.

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Scott A Olson, CLTC said...

A few additional thoughts about long term care:

In most states, in order to qualify for state-funded care, one has to spend down his savings to $2,000.

Some states, including Virginia, have Long Term Care Partnership policies. If one were to use his LTC Partnership policy's benefits, he could qualify for state-funded care and protect an amount of assets that was equal to what his LTC Partnership policy had paid in benefits.

For example, if Hausman had a LTC Partnership policy that paid him $750,000 in benefits, he could then apply to Medicaid to pay for his care and Medicaid would allow him to keep $750,000 in savings, because that's how much the Partnership policy had paid out in benefits.

Also, many long term care insurers have "first to use" policies, where 2 partners can share one policy. It's a very cost-efficient method of protecting assets.

Lastly, some long term care insurers give a large discount (as high as 30% to even 40% in some cases) to same-sex domestic partners when they both are insured (under either the same policy or two unique policies from the same insurer.) Some long term care insurers do not offer a discount to same-sex partners.

Scott A. Olson, CLTC

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