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Changing social mores are upending financial plans

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NASHVILLE, Tenn. — When it comes to settling down, the next generation isn’t in any rush. Advisors need to be prepared for that.

“The average millennial will get to 34 before they get married — if they ever do,” said Joshua Charles, CEO of advisory firm Financial-360 during a panel at the FPA's annual conference.

Advisors should expect to have several clients who are coupled but unmarried. Planning services for these relationships is key to avoiding messy financial entanglements.

Charles used to specialize in helping LGBTQ couples manage their finances prior to the federal legalization of same-sex marriage. Now married, he recalled the financial hurdles of his previous relationship — a 14-year partnership. A fruitless trip to an estate planning attorney was one of the reasons he became an advisor.

“They wrote our documents like we were legally married, so they were no good,” he recalled.

Charles notes there are financial benefits to either getting married or staying unmarried and the next generation of clients will weigh their options. Millennials, in particular, are more concerned about these factors than the sanctity of marriage, he says.

When planning for unmarried couples, it’s important advisors determine how asset ownership is distributed. Should one of the partners become incapacitated, things can get especially dicey.

“Title is so important because it basically dictates how an asset is going to transfer and who it’s available to,” Charles said. “If we have an individual asset and that individual becomes incapacitated, who has power to act? No one necessarily. But we don’t necessarily want to take that asset and put it in a joint name, because we give up the ownership or the powers that go with it.”

There are workarounds if a couple wants to keep individual assets in one client's name. If that’s the direction a couple wants to go, establishing the appropriate powers of attorney is important in case of incapacity. However, powers can expire if the named client dies, Charles says. Without access to beneficiary designations via marriage, how can an asset transfer after a death?

"The answer is a TOD (transfer on death) or a POD (pay on death)," Charles said. But bear in mind, this won't work for everything. You can add these types of beneficiaries to checking accounts, brokerage accounts and savings accounts but you can’t use them on actual property like a house or a car.

“If you’re dealing with unmarried couples, a second cousin is going to be more at the plate than a partner of 30 years,” he said. “Family comes out of the woodwork when someone passes away.”

Advisors should walk clients through all the financial pros and cons of marriage before the couple ties the knot. Even if they don’t marry, planners can help them organize assets so they don’t run into the problem Charles experienced during his prior relationship.

“We were basically two legal strangers living a life as a married couple,” he said. “I’m now in a relationship of 12 years in which we are legally married so I’ve been through the planning of that process as well.”

For some couples it may be better to stay legally single for one big reason.

“I’ve had conversation over conversation with couples deciding whether to get married or not,” Charles said. “One negative to getting married is the tax considerations.”

Why? Filing is a lot simpler when there are two returns. And by filing separately, unmarried clients can avoid certain tax burdens. Careful planning can provide workarounds, Charles said.

“Currently, standard deductions are at $6,350 for an individual or $12,700 for a joint. If you have $10,000 of itemized deductions, have one person take the itemized and the other [take the]standard deduction, giving you a total of $16,000 in potential deductions,” he said. The alternative, he said, is “taking $10,000 of itemized items, splitting it in two and then neither of you is getting the benefit from it.”

Other considerations to walk clients through include home ownership and retirement planning.

Some clients, especially LGBTQ clients, should be wary of how their geographical location will impact their decision making. Even in a post-Obergefell world.

After marriage, “In some of these smaller towns you can return to your home and find your lease isn’t going to be renewed or you may be out of a job,” he said.

Overall, advisors can play a key role in helping unmarried couples navigate this complicated landscape, Charles says.

“As we’re working with different couples in different communities, we need to think about who it is we’re talking to and what they’re trying to get out of the conversation and relationship,” said Charles.

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