Gordon Tanner finds himself radically changing his retirement and estate plans thanks to a new marriage. It's not that the 63-year-old has to worry about having enough money to retire in style, or support his new spouse. Tanner is the principal deputy general counsel of the Air Force, the senior bureaucrat lawyer in that branch of the Service. As a civilian employee at the Pentagon, he is the equivalent to a three-star general. He is entitled to both a federal government pension, plus the federal government's equivalent to a 401(k), called the TSP, or thrift savings plan, plus Social Security. His divorce 16 years ago presents no financial problem-he and his ex-wife and three adult children are all on excellent terms. Tanner's biggest worry is making sure his new spouse will be provided for after his death. His new spouse is a man.

He and Robert Patlan, 44, are planning to build their dream home by the coast in Delaware. The pair was married two years ago in the National Cathedral in Washington, D.C., which, along with six states, recognizes gay marriage. But in spite of that, they face unique challenges to ensure that the surviving partner inherits the real property they own separately in Alabama and the District of Columbia, and that they own jointly in Delaware. "That creates all sorts of problems relating to estate administration," Tanner says. "If one of us were to pass away, which states would recognize us as married for purposes of estate administration? That's one of the issues in connection with our estate planning. It's complicated."

If not handled properly, it is entirely possible for the surviving spouse to lose a home at the death of the other spouse. What's more, under current law, Patlan cannot inherit Tanner's federal pension or Social Security benefits. (If Patlan were a woman, there would be no difficulty.) Tanner adds that he and Patlan, a senior contract manager for AT&T who has his own 401(k), want to ensure also that Tanner's adult children are all cared for. "We're working on it," Tanner says. "It's a process, and we believe we are making good progress," he says, adding that the goal is "no duplicate taxes that may arise by virtue of the fact that the state may or may not recognize our marriage."

Tanner and Patlan are, in fact, lucky. They know there are land mines, and are working with a specialist advisor to defuse all of them. Their advisor, Joshua T. Hatfield Charles, of Rockville, Maryland-based SPC Financial, manages $500 million in assets, of which $100 million is from lesbian, gay, bisexual or transgender clients. SPC Financial is an RIA that offers securities through Raymond James Financial.

A frequently quoted expert in the field, Charles is vigilant about working with estate attorneys with expertise in the many legal pitfalls that same-sex couples have to navigate. Every financial advisor working with same-sex couples has horror stories of long-time partners left out in the cold in favor of distant family members as a result of careless or non-existent estate planning. Surviving partners can end up losing their home, as well as any assets from the relationship.

U.S. Census data puts the number of same-sex couples living together in 2010 at approximately 620,000. That trend is expected to grow, according to a survey conducted earlier this year by the Financial Planning Association. The survey of 5,500 FPA members found that planning software doesn't exist to deal with the needs of this demographic group and that advisors who have same-sex couples as clients have to do a tremendous amount of manual data entry. One survey respondent wrote: "I must run programs separately for same-sex couples, so it doubles the data entry effort. I also need to analyze tax issues separately."

Planning for same-sex couples-whether married or not-also requires navigating a patchwork of laws. Charles, who worked on the executive summary of the FPA survey, says that one of the primary problems is that the federal government does not recognize same-sex marriage, following the 1996 Defense of Marriage Act (DOMA). "There, we're no more than legal strangers," says Charles, who is himself gay, and married to his partner of seven years.

Moreover, on the state level, there are varying degrees of recognition-not to mention different levels of rights and protections-for same-sex couples. Each state decides if and how it recognizes same-sex couples, so advisors must plan on the state level for each of 17 states that offer the privileges of civil unions, domestic partnerships or gay marriage. And each category requires different types of planning. And even within the same category, there are details advisors must be aware of: a civil union in New Jersey is not the same as a civil union in Illinois. If clients own property in different states, that means a different plan for each state.

After that, the advisor also must do a different kind of planning on the federal level. "We have to get those two levels of planning to work in concert," Charles says. There are 1,138 rights, obligations and privileges that come from the status of marriage under federal law that heterosexual couples enjoy that same-sex couples do not, he says. A major one is the right to inherit a deceased spouse's federal benefits, including Social Security.

And being married in one of the six states, plus D.C., that recognize same-sex marriage is still no guarantee of rights. In fact, it gives a dangerous false sense of security, some advisors say. "When you call it marriage, the couples believe they have the same benefits as a heterosexual married couple, and that's just not true," says Kyle Young, a Short Hills, N.J.-based Wells Fargo financial advisor with the largest LGBT practice in the country, at about $150 million in exclusively LGBT assets. Young and his business partner wrote the course work for the designation for advising same-sex couples offered by the College of Financial Planning-called the Accredited Domestic Partnership Advisor (ADPA). It was created by Wells Fargo for its own advisors in 2009 and the College opened it up to all advisors in 2010. About 110 of Wells' advisors have the ADPA, and, the College's website says there are a total of about 245 accredited advisors nationwide.

Young notes that heterosexual couples are exempt from paying taxes on the assets and home one spouse leaves the other, while same-sex married couples have no such exemption. "On the surface they're called the same thing, but it's clear they're not," he says.

But things may be about to change for Young's clients and others like his. This summer a federal court in New York ruled against part of DOMA, saying that it was unconstitutional when the federal government did not allow a same-sex couple to claim the marital deduction on their federal estate taxes. The case, Windsor v. U.S., was brought by Edith Windsor, the widow of a same-sex married couple who lived in New York, (which recognizes gay marriage). She had to pay an extra $363,000 in taxes from the estate of her late spouse because the federal government did not recognize their union. The women got married in Canada in 2007. Windsor's attorneys have requested the U.S. Supreme Court to hear the case.

Estate and Retirement Battles
Specialist advisors agree that regardless of the outlook for DOMA, advisors should create plans assuming it will stay in place. Although there are a plethora of financial issues same-sex couples face, two of the biggest are planning for retirement and keeping the estate from paying too much in taxes after the first partner dies.

In retirement, because of DOMA, same-sex partners cannot inherit any federal benefits from their deceased spouse, including Social Security. Plus, many private benefits, including corporate pension plans and many annuities, will not pay out to a same-sex spouse upon the owner's death. So advisors must figure out other ways to replace that lost income for the surviving spouse. "For most people except the exceptionally wealthy, Social Security does make up a substantial amount of income. You have to account for that not being there," Bruce Stuart, an LGBT specialist advisor with Morgan Stanley Smith Barney in San Francisco, says. "You need to be able to address that, especially if there's an income disparity."

Other accounts meant to provide for retirement income, like IRAs and life insurance policies, can be left to a same-sex spouse. However, even then, same-sex couples face inequality. If one member of a same-sex married couple dies prematurely, provided the surviving partner is allowed to inherit, he or she must start taking distributions right away, rather than waiting until age 59. If they were a heterosexual married couple, the surviving partner would wait until age 70 1/2. "We don't have the long-term wealth accumulation that legally married couples have," says Darla Kashian, a financial advisor at RBC Wealth Management who is in a gay partnership. She adds that although a surviving partner does not have to pay an early withdrawal penalty, the forced distribution increases the partner's taxable income.

In addition, the partner must be specified as the beneficiary, unlike with heterosexual married couples where the surviving spouse will automatically inherit. "Even the life insurance policy that is standard with many employers, if not specified that it must go to the same-sex partner, it might go to the deceased's parent," Stuart says. "Then you start bringing in the overlay of what's the arrangement between the same-sex couple and their father-in-law." If there's some sort of rift, it could become problematic.

One of the biggest challenges of estate planning for same-sex couples is that even distant relatives could mount a challenge to the surviving partner inheriting assets or property if the planning is not done correctly. "If there's no will or power-of-attorney or some type of trust, the default is the assets pass to your next-of-kin, your bloodline, certainly not your partner," Young says.

Aside from making sure the surviving partner inherits the couple's assets on the partner's death, there are the tax consequences to being a same-sex couple. (Remember the $363,000 tax bill on the estate of Windsor's partner. ) Advisors must structure the estate plan carefully using trusts and other vehicles. One tool many advisors use to protect the couple's assets is life insurance. But there's a key difference for same-sex couple. Rather than each partner owning his own policy, as a heterosexual couple can do, each member of the same-sex couple buys a policy on the other's life. Here's the reasoning: even though the death benefit will go to the surviving partner, the life insurance policy in the deceased spouse's name counts toward the value of the estate. The policy, meant to ensure one spouse's retirement, could easily tip a borderline estate over the limit ($5 million) that is subject to federal taxes. But, if the policy is owned by the surviving spouse, or in a separate life insurance trust, the death benefit will not be included in the estate, because the estate does not own it. Young says setting this up with a knowledgeable estate attorney is a relatively easy process, but few couples (and few insurance agents) realize its necessity. "Almost every life insurance policy I've seen in 10 years; 99% of them have been improperly structured," he says. The good news is that it is relatively easy to fix, even if the policy already exists.

"These titling issues sound straightforward, but they're unbelievably important when you're not recognized as a married couple," Young says. "For a heterosexual couple, this is a complete non-issue. They're allowed to pass an unlimited amount to each other when one dies." This is one of Tanner and Patlan's challenges. Patlan can't own the federal life insurance policy that Tanner is given as part of his compensation. So, this life insurance policy would get added into Tanner's estate, increasing its value. To keep the work-sponsored policy outside the estate, Charles created a special trust for it.

Proper estate planning is also crucial when same-sex couples want to own property together. Advisors for LGBT couples may have to have different goals for various assets-protecting the asset against a challenge in probate, or mitigating estate taxes. "There's not really a global way you can do it," Charles says. Several variables determine the best course: varying levels of estate tax thresholds in different states versus the federal government, as well as whether the state recognizes gay marriage at all. (For instance, in Maryland and D.C., estate tax kicks in at $1 million, whereas at the federal level, it's $5 million.)

So the advisor has to figure out the goals for each asset, depending on where they are located, and then figure out how to get the appropriate assets into the right structures to meet the couple's goals. There are a variety of ways to title property. One that protects the home from probate is called "joint-tenants-in-common." This way, each partner's share of the home goes into the estate at his death. Although it will protect the partner's ownership of the home, it will also increase the estate value, possibly triggering an outsized inheritance tax bill. It also means that the surviving partner could conceivably end up co-owning the home with a relative of the dead partner.

Another way to title the property is "joint tenancy with rights of survivorship," which means the property goes directly to the survivor. It's more commonly used with LGBT couples. "From an inheritance standpoint, [it] streamlines the process greatly," Young says.

Still another method is to use a revocable living trust and avoid probate. This way, an estate attorney can put all the client's assets into the trust, plus the equivalent of a will, with instructions on how to dispose of the assets whether the client is alive, incapacitated, or dead. "Once you have it, it's all benefits from that point on," Charles says.

Tanner and Patlan own three properties in two states and D.C. "Depending on what we're trying to do, we need to have conversations about what makes the most sense for those three properties. You have to be aware of these extra challenges," Charles says. If Tanner dies before Patlan, each state in which the pair own property could try to pull those assets into its own state for probate purposes, to get more tax revenue. Delaware could try to pull the Alabama property into Delaware and vice versa. Delaware recognizes the marriage, while Alabama does not. The best case for Patlan would be for the entire estate to go through D.C., where the couple was married.

"As soon as you get probate in another state-besides the inconvenience-now you're losing the protection of marriage because now you're going against Alabama law, which is not gay-friendly," Charles says. So, if a distant relative were to try to contest Patlan inheriting in those states, he would not have the protection of marriage. "His second cousin twice removed would have more protection under the law than Robert, because the marriage isn't recognized," Charles says. What's more, if one partner is incapacitated in a state with no marriage protection like Virginia without proper power-of-attorney, any assets in his name are frozen. If the sick or injured partner dies, his assets stay frozen while in the probate process until a judge decides they can be released. Meanwhile, the deceased's estate is also paying probate costs. Plus, if the couple is in a state with no marriage protection, any of the dead partner's relatives can challenge the surviving partner's claim to the assets.

There are other instances where same-sex couples are at a disadvantage compared to their heterosexual married counterparts-from selling a house to having to pay taxes on employee health benefits to dividing the working partner's 401(k) in the event that the couple splits up. A heterosexual couple who gets a divorce can get a qualified domestic relations order, or QDRO, and split the 401(k) into two retirement accounts with no tax. The same-sex couple can't get a QDRO. To split the same account, they have to take a formal distribution, which is subject to taxes, and, if the 401(k) owner is younger than 59, take a 10% penalty. It could also trigger a gift tax.

The advisory industry is taking note of the opportunities in the LGBT community. Five years ago, RBC Wealth Management did a pilot program to help its advisors reach LGBT clients in Minneapolis, which has a sizeable LGBT population. These clients "can really see through disingenuousness," Wanda Brackins, head of Wealth Management Global Diversity at RBC, says. They were not interested in advisors who simply wanted to add to their client roster without learning about their special needs, she says.

Advisors in the program did a lot of outreach and put on financial literacy workshops. RBC tracked their progress in making inroads with the LGBT community, separate from the rest of their book of business. RBC helped with advertising, which is still available, in the LGBT specialty press. The program is over, but RBC has continued to target markets with substantial LGBT communities, such as San Francisco and Seattle, and just updated a series of 30 to 40 ads targeting LGBT families. RBC has also provided support to advisors in other cities, including Houston and Fort Lauderdale. RBC's Kashian says that heterosexual advisors should not worry that LGBT clients won't give them a chance. She says the majority of gay or lesbian clients do not have a gay or lesbian advisor, adding: "I assure you, the majority of advisors have at least one gay or lesbian client, whether they know it or not."