J.P. Morgan’s Joseph Hahn: How to Go the Extra Mile for LGBTQ+ Clients

Speaking with Barron’s Advisor, Hahn explains how gay clients’ “families of choice” must be formally empowered through legal documents. He describes how “poison pills” can safeguard estate plans against challenges by hostile biological family members. And he reveals the sobering reason that LGBTQ+ clients might want to plan to receive long-term care at home rather than in a group facility.

Why did you write your recent white paper, “Unique Challenges in Retirement and Estate Planning Facing LGBTQ+ Persons”? I’ve been a trust and estates lawyer for over 26 years. For quite a few of those years, I worked in the Palm Springs area representing hundreds of LGBTQ clients and couples. Before the same-sex marriage decision from the Supreme Court, we had to do extraordinary things to do estate planning for these clients. And after the decision, I think there has been a misconception that those problems have largely gone away. Our thinking behind this white paper was to point out areas where we think there are still a lot of misconceptions and explain how risks facing LGBTQ clients can be mitigated.

In the paper, you talk about creating legal authority for gay clients’ family of choice. Can you explain? Most people in the U.S. never think about family of choice because in their elderly years, they have primary sources of support in their adult children, spouses, and partners. But for LGBTQ+ clients, those folks might not be available. The reality is that LGBTQ+ seniors are twice as likely to live alone, are half as likely to have a partner, and are four times less likely to have adult children. And many of their biological family members may be estranged. So who’s available to take on the caregiving role for LGBTQ+ seniors if the natural family candidates—spouses, adult children—aren’t present? That’s where the concept of family of choice comes in.

It isn’t something that LGBTQ+ seniors so much have to establish as something that they already have. Most would recognize the concept instantly. Family of choice often includes some supportive family members, but more frequently it’s a group of very close friends who form a family that’s just as close, just as loving and just as supportive as a biological one. The problem is that no law recognizes these types of unofficial family relationships. So LGBTQ+ seniors have to establish, through formal legal documents, the authority of these relationships.

What kinds of documents? We’re talking about documents like financial power of attorney, healthcare power of attorney, HIPAA waivers, where you would name one or more of your family of choice members to have authority to discuss your medical condition with your healthcare provider. Also, every financial-service organization now has the ability to name trusted contacts for clients—folks they would reach out to when there is questionable activity on accounts or concern the senior might be taken advantage of or might be the victim of fraud.

What would be the discovery questions around family of choice for LGBTQ+ clients? Who in your life do you envision is going to be there for you as a caregiver when you reach the point in time that you need that? In some cases, the senior will say, “It is my adult children,” or “It is my spouse.” In some cases, they might say, “I’m not sure.” In which case this is a great discussion topic to have.

Can you describe a couple of the healthcare costs that are unique to gay folks and what that implies for financial planning? One of the most acute problems is the issue of long-term care. There’s no federal law that protects LGBTQ+ persons from discrimination, and definitely not one that protects them in long-term care settings. Some states have enacted laws but most haven’t. Research shows that 60% of LGBTQ+ seniors fear that they’re going to be forced back into the closet when they go into a long-term care setting or be subjected to harassment or be evicted. Right now there are thousands of LGBTQ seniors suffering in long-term care settings, and there’s nothing that they can do about it. Our suggestion is that while you have time, look at what in-home care would cost and start planning for that in advance.

What’s another example? Healthcare generally is going to be more expensive for LGBTQ seniors. Studies have shown that their costs are higher than typical. There are more mental and physical health problems in this population. There’s a greater likelihood of smoking and a much greater likelihood of drinking. All of that contributes to worse health outcomes. I think the most disturbing thing we discovered is that a lot of these problems are driven by what we would call an epidemic of loneliness. Studies have shown that that leads to significantly worse health outcomes that can be equivalent to smoking or cardiac disease. So again, our suggestion is that in the financial-planning process, years in advance, that advisors talk to clients and say, “Look, our expectation is that your healthcare costs could be increased compared with the typical senior. Would you like us to build those assumptions into the plan?” That planning process, if it’s begun early enough, can build in a cushion for these increased costs.

That sounds like such a delicate conversation to broach. It is a delicate conversation because it requires talking about matters of the heart and matters of the wallet. But this conversation tends to build a level of trust with a financial advisor that is entirely different than a discussion about an investment performance. When financial advisors become comfortable talking to clients, especially LGBTQ clients, about these matters, it tends to build a client for life.

Your paper references “bulletproofing” estate planning. Why and how would one do that? During my estate-planning career, I saw probably hundreds of cases where unsupportive or hostile family members would take advantage of a situation where there were no estate-planning documents that documented the relationship of the LGBTQ+ couple, or would actively attack existing documents. Those hostile family members, if they could fill the vacuum of nonexistent documents or knock out the existing documents, would be the default executor trustee or beneficiary. So the assumption that these seniors need to take is that their estate plan will be subject to a challenge. Thus, they need to take that into account and attempt to bulletproof the estate plan.

What’s an example of a bulletproofing technique? The easiest situation for a client’s wishes to be disregarded is if they have never made those wishes solid in estate-plan documents. So first of all, document your estate plan, even if your plan leaves everything to your spouse under the default laws of your state, because those laws can be changed with one court decision. We saw that recently in the case of the Dobbs decision (overturning Roe v. Wade), where existing law changed in a second.

Two, LGBTQ+ seniors should bulletproof those documents with antichallenge provisions. Those are typically known as no-contest clauses, and they say that any legal attack by a disgruntled family member will disinherit that family member. It’s effectively a poison pill.

The most common way that hostile family members challenge estate documents is by claiming that the senior lacked adequate capacity to name their LGBTQ+ partner. So in any case where capacity could be in question, we recommend those seniors go the extra step of getting a medical opinion letter, either from their primary-care physician or from a licensed psychologist, that says, “I examined this person, and in my medical opinion, have adequate capacity to make the planning decisions that they have described.” And that tends to be a strong disincentive to hostile family members who might try to make an argument about inadequate capacity.

On a brighter note, you write that gay people without children may have advantageous retirement planning options. A couple of examples, please. For many of our clients, the goal is twofold. They want to not run out of money in retirement, and they want to leave money for heirs, typically children. For LGBTQ+ seniors who have no children, certain solutions like charitable solutions may become more attractive. That could include strategies like a charitable remainder trust or a charitable gift annuity.

And then there are commercial annuities that don’t have a charitable component and are just used to convert retirement assets into a guaranteed income stream for life. If the client isn’t concerned with outliving their money or leaving money to children, these commercial annuities might be attractive to them because they could in many cases get substantially more than the typical 4% withdrawal rate that we use as a planning general rule. A similar principle might apply to a reverse mortgage where the LGBTQ senior isn’t concerned with leaving a house for the benefit of children or other heirs. In that case, they’re able to tap into that equity and use it during their retirement years.

How is the financial-planning industry doing in terms of serving the LGBTQ+ community? I think the outlook is decidedly optimistic. We’ve come so far so fast. It’s easy to forget that just eight years ago, there were many places in America where same-sex marriage was illegal, where you could be fired from your job for being gay. And the needs of this community were really not being addressed by the financial-services industry. We’re in an entirely different time. But things have changed so fast that advisors might be complacent. They might be under the widely shared impression that same-sex marriage eliminated all differences between LGBTQ planning and planning for heterosexual couples. So our goal is to celebrate that things have changed, but also to shine a spotlight on the areas where there are still differences and point out ways that advisors can help their clients mitigate those risks.

It seems like 10 years ago, if you were a gay person or a couple and you wanted financial advice, you’d have to seek out an advisor specifically serving that niche. It seems less so these days. I get that impression too. That was also true in the legal industry, where LGBTQ+ persons would seek out LGBTQ attorneys or LGBTQ financial advisors. And at the time, that was probably necessary because the steps that had to be taken to do effective planning were specialized. I think that has largely changed. I think now folks can largely choose anyone that they feel is competent and is conversant in these areas. But again, our goal was to remind everybody who is doing work with this community that there are still a few areas that require some specialized knowledge and the risks that are associated with it can be mitigated.

Thanks, Joseph.

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