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Chapter One
Twenty-one Myths
That Can Make You Poor
The great enemy of the truth is not the lie-- deliberate, contrived and dishonest--but the myth--persistent, persuasive and unrealistic.
--John F. Kennedy
Everyone has the right to live with financial security. In a society rife with discrimination, misleading financial information, biased retirement distribution rules and estate tax laws, and ever-changing investment and insurance vehicles, gay and lesbian couples face many challenges as they strive to reach this goal. To achieve financial security, it is vital that you and your partner understand the key issues and have a plan.
Any of twenty-one commonly held myths could prevent you from realizing this security. This chapter identifies those myths and the major obstacles that you must overcome to protect yourself and your family. Perhaps the biggest myth is that gay and lesbian couples are always at a disadvantage compared to their straight counterparts.
Myth #1: I'm young, healthy, and in a solid relationship, and I have great group benefits and save regularly. I don't have to do financial planning.
Not true. Think about the following:
* How long will your money last if your employer downsizes and you're out of a job?
* If your partner was hit by a drunk driver, how would your lifestyle, financially speaking, change?
* Are you paying more taxes than you should?
* If you were unable to work, what would you live on when your disability expired?
* How do you want your money to be used after your death?
Myth #2: I am in a committed relationship. I don't need a domestic partnership agreement.
Get serious. Gay divorce can be just as ugly as straight divorce. Think of a domestic partnership agreement as a prenuptial or nuptial agreement.
Myth #3: Married couples pay less in income taxes than gay couples with the same income.
This is actually one area where you fare better than straight couples. In financial planning circles, this is known as the gay couple bonus or the marriage penalty. You pay less in taxes than straight married couples with the same income who file jointly.
Myth #4: My partner and I have had a commitment ceremony and we are registered as domestic partners with our city. We now have rights like other married people.
Not true. Until lesbian and gay couples have the right to legally marry, nothing has changed for you. Many states have passed laws saying that they will not recognize out-of-state same-sex marriages. The federal Defense of Marriage Act, passed in 1996, provides that same-sex marriages will not be recognized for any federal purpose--federal income tax, Social Security benefits, pension distribution laws, etc. Until the law recognizes and allows same-gender marriage, you must do financial and estate planning to assure your security.
Myth #5: We can afford to send our daughter to a state college, but we will never qualify for financial aid for her to attend an expensive private school.
Whoa! Let's not be hasty. This is an area where you may have an advantage over straight couples, if there is only one custodial parent in your household.
Contrary to popular belief, financial aid is based on "need," which is not to be confused with being "needy." Just because you can afford a state school does not necessarily mean you cannot qualify for financial aid for a more expensive private school.
Myth #6: We won't need as much money when we retire as we do now.
Too many Americans subscribe to this fallacy, and the consequences hit gay couples particularly hard. Often, because of estrangement from your relatives, you cannot count on help from them. Many of you are cut off from your inheritance. And many gay and lesbian couples don't have children who can provide emotional and financial support. (There can be similar problems when you are dealing with disability.)
Myth #7: Because we are not married, I can't receive my partner's pension, 401(k), or IRA proceeds.
Partly true and partly false. If your partner dies before his or her retirement, you may be out of luck. Some plans have no provision for passing proceeds to anyone other than a married spouse. Retirement plans that are funded entirely by the employer typically fall into this category. Life insurance can help solve this problem before and after retirement.
Myth #8: I will lose my group health insurance benefits if I take early retirement because of disability.
Not true. Any employer-sponsored plan for twenty or more employees must comply with the Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation requirements. COBRA allows you to continue your health insurance for up to eighteen months after leaving your job.
If you are disabled or become disabled during the first sixty days of electing COBRA, you may also be eligible for Omnibus Budget Reconciliation Act (OBRA) benefits. OBRA coverage works like COBRA, costs more, and extends your benefits for eleven more months. If the Social Security Administration certifies that you are disabled, then these two programs guarantee that your health insurance will continue for twenty-nine months prior to your becoming eligible for Medicare.
Group life insurance can also be converted to individual life insurance, if you must leave your employment because of disability.
Myth #9: My partner has domestic partner benefits at work. I will be protected by COBRA if his employment is terminated.
This is incorrect. Spouses in legally recognized marriages are protected, but since federal law does not recognize your relationship, you are not protected in the same way. Should your partner's employment be terminated, you will have no coverage unless the insurance carrier has special provisions.
Myth #10: I don't have to worry about retirement income. I will collect my disability insurance as long as I live.
Many people collecting disability benefits other than Social Security Disability Insurance (SSDI) are going to be blindsided by this one. Almost all individual and group disability benefits expire at age 65. Some individual plans expire sooner. This means that when your policy expires, your income stops. Also at age 65, SSDI may convert from disability income to retirement income at a reduced level, 85 percent of which is currently taxable.
Myth #11: If we sell our house, which I own, we are entitled to a $500,000 exemption just like married couples.
You are entitled to a $250,000 exemption every two years on capital gains taxes for a primary residence that you have lived in for two of the last five years. If each of you owns a 50 percent interest in the house, then it's $500,000.
Myth #12: I have AIDS but have no symptoms. If I wait to start medical treatment, I will receive a larger viatical settlement than people with symptoms.
Under a viatical settlement agreement an individual sells all of the death benefits in his or her life insurance based on his or her life expectancy.
If you are thinking about selling your life insurance and are holding off trying the new drugs because you think you will get a larger settlement, forget it! Viatical settlement companies factor in a longer life expectancy in their offer whether you are on the drugs or not.
Viatication can be appropriate for any terminal illness--including breast cancer, hepatitis C, and prostate cancer--when people have no other resources or need additional cash. And remember, not everyone can afford or tolerate the new drugs.
Myth #13: Viatication is tax-free.
Tax legislation signed by President Clinton made viatical settlements tax-free at the federal level effective January 1997, but only in certain situations. If the payment does not meet the requirements of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), it won't be tax-free. The law essentially says that payment must be for long-term care for someone who is terminally or chronically ill. If the person is chronically ill, that person must be expected to die with in twenty-four months.
Myth #14: I'm too young to need life insurance.
True, you don't need it. But once you see what you can do with life insurance, you will be amazed. You can use your policy to accumulate tax-free dollars that can supplement your retirement income on a favorable tax basis. Some life insurance policies can even be invested in mutual funds during your lifetime, enabling you to build your nest egg free of capital gains taxes.
Myth #15: As a gay person, I cannot buy life insurance and name my partner as beneficiary.
This depends upon the state where you live. Some states, such as California, allow anyone to be your beneficiary. Other states, such as New York, require an "insurable interest," generally defined to mean a blood relative, spouse, or business partner.
Myth #16: I have breast cancer, so I can't get health insurance.
Don't bet on this. Some states have high-risk pools to help individuals who are otherwise uninsurable.
Myth #17: I have HIV, so I can't buy life insurance.
Not entirely true. There are insurance companies that issue a kind of policy known as graded death benefit insurance. Such policies can be used by people who are living with cancer, AIDS, heart disease, or any other terminal illness. Applying for them generally does not involve medical questions or blood or urine tests.
Myth #18: We've been together for years. We don't have to worry about who will handle the money and take care of our children if one partner dies.
Wrong, wrong, wrong! State intestacy laws, which stipulate how property is distributed when a person dies without a will or trust, do not recognize lesbian and gay relationships. If you assume that these laws apply to you, you will make a tragic mistake. In addition, not all states allow adoption by same-sex partners. If your state does not, you may have a serious problem if one of you dies.
Myth #19: We've been together for years. Our families understand us and will help the survivor.
This is probably the most tragic assumption lesbian and gay couples make. Death does strange things to people. Old loyalties disappear and estrangement resurfaces. Many partners have lost everything because they thought their loved one's family would respect his or her wishes. But you can protect yourself no matter what anyone's family thinks.
Myth #20: Joint ownership with right of survivorship is all I need to ensure that my partner will receive our house if I die.
This should be true, but it may not always be true. Family members of the deceased who want property have challenged many gay survivors. Usually the challenger claims that your partner made a casual decision, not one that he or she really wanted to make. Many courts have accepted this argument.
Myth #21: There is little or no financial difference when a partner, rather than a married spouse, dies.
Actually, there is a very big difference. This is where the pedal hits the metal, where political disenfranchisement hits the pocketbook. Retirement plan payments may continue if your partner has already retired, but everything can be lost if death occurs before retirement. (For married couples, payments continue.) Social Security doesn't protect the surviving partner. Joint property can be taxed differently for you than for married couples. You need to have documents proving how much each partner actually contributed.
On the other hand, you have a major advantage over straight couples who wrongly assume there is no urgency about doing financial and estate planning: because you don't have the luxury of making false estate assumptions, you have an opportunity to be better prepared for the future.
HOW TO TAKE CONTROL OF
YOUR FINANCIAL LIFE
Lesbian and gay couples can easily fall victim to financial misinformation. This chapter has shed light on the most common financial myths that confuse people and cause them to make serious mistakes. By becoming familiar with these myths you can avoid these mistakes and even enjoy financial advantages that straight couples do not have.
In the next chapter, you will learn the basic principles of financial planning that will serve as the foundation for the rest of the book. In the following chapters, you will find out how to plan for your future so that you can have many of the benefits that legally married couples take for granted.
Would you like to take control of your financial future? This book will give you the tools to overcome financial and social hurdles and take control of your money.
Copyright © 1999 Harold L. Lustig. All rights reserved.
