Despite what the lat
-est Pride parade photos may indicate, some Canadians remain deeply ensconced in their own private closets and are reluctant to share with the families that raised them the fact that they are homosexuals.

This is something of which every advisor should be aware because, although federal legislation allowing same-sex marriage was passed last summer, not every Canadian is supportive of same-sex relationships. And one of the biggest issues when drawing up a financial plan for a same-sex couple revolves around a family’s unwillingness to accept the partner as a beneficiary.

“I’ve seen situations in which the family of the person involved in the same-sex partnership was not too keen on what was going on,” says Dennis Morrison, a certified financial planner with Dundee Private Investors Inc. in Vancouver. “If same-sex couples don’t have their estates in order, that can be a problem.”

And, although the change in legislation has cleared the path for married same-sex couples to enjoy the protection of family law, unmarried couples aren’t as lucky, says Linda Cartier, a CFP and registered financial planner with Financial Decisions Inc. in Sudbury, Ont.

Common-law couples have always had to take a few extra steps to ensure that messy breakups and untimely deaths don’t leave them high and dry, she says.

But same-sex couples, because they are a minority, have a heavier burden of proof than their heterosexual common-law counterparts.

“They need to be more careful,” Cartier says. In fact, she argues, there is more of an onus on same-sex couples to provide proof of the legitimacy of their relationships: “And that is certainly a role an advisor can play in making sure all things are done properly.”

Here are a few steps advisors can take to ensure that financial arrangements are set up properly for same-sex couples:

> Face The Facts. There is no sense in tiptoeing around the issues that gay and lesbian couples have to face, says Kathleen Holland, a CFP with Investors Group Inc. in London, Ont. Once a couple is in an established relationship, she says, the partners need to think about how to safeguard their financial futures.

She has these discussions very early on with her clients, one-third of whom are from the gay and lesbian community. She says same-sex couples need to know that their reluctance to take the proper steps — for example, because they are afraid of blowing their cover or think that they are somehow protecting other family members — may have repercussions.

“You really want to sit a couple down and say, ‘These are the consequences of making a decision in favour of the relationship, and these are the consequences of making decisions that mask that the relationship exists’,” she says.

Holland points out that advisors shouldn’t jump to conclusions. Some people prefer not to plan as a couple, for example, while others may not be ready to admit they are homosexual. Advisors should avoid questions that make individuals feel on edge. But there are ways to open up the discussion, she says.

It is the responsibility of an advisor to un-derstand a client’s relationship to a named beneficiary, Holland says. A client in his or her 50s who names a parent as a beneficiary is usually signalling that something is being avoided, especially if you sense that this client is in a relationship, she says.

An advisor needs to let such clients know that there will be repercussions to naming someone other than their partners — at least, for their registered investments.

“The fact remains that, as far as an estate settlement, a parent or sibling will have to pay taxes on money received through a registered plan,” she says. “Whereas the common-law or married partner will be able to receive a tax-deferred rollover.”

Holland recommends that clients find other ways to include their parents, siblings or children in their estate plans.

> Fill The Will. With heterosexual common-law couples, it is generally understood that the spouse will inherit everything — and it’s rare that a family member will contest such an arrangement. Not so with same-sex couples.

“The family can be onside and all smiley-faced, but when someone dies and leaves a significant estate, the tide can turn,” says Morrison.

@page_break@He recommends clients include as much detail as they can in their wills, including confirming the nature of the relationship and the expectations they have for their various investments, including RRSPs.

“If you lay it all out, that is just another layer of concrete over anybody contesting it,” he says.

Holland suggests that clients go one step further and outline exactly who is being excluded from a will — and why: “Then that person will not be able to go to court and say, ‘Maybe this person wasn’t in his or her right frame of mind and forgot me’.”

> Play The Name Game. Holland is adamant that a will, no matter how “bulletproof” it might seem, is not enough to protect same-sex partners. But, she says, there are other ways in which to firm up an estate plan.

“What I recommend is that the couple secure as many named beneficiary designations as possible,” she says. RRSPs, pension plans and life insurance policies should all name the partner as the beneficiary.

This paper trail can come in handy in other ways. Cartier recounts a recent situation in which one of her clients, a lesbian, had lived with her partner for more than a decade. But when it came time for her to go on a pension, her employer balked at her naming her live-in partner as her spouse.

“They had to go through an enormous number of hoops because she had not previously identified the partner to her employer as her spouse, and that word was causing all kinds of grief,” Cartier says.

It turned out, however, that this client had made several registered investments through Cartier years earlier, and she had named her partner as her beneficiary at the time. These documents were useful in proving that their relationship was legitimate, she says.

“Because we had identified that this was the spouse from a number of years before, and this was the same person, the employer accepted it,” she says.

> Cohabitation Agreements. Statistically, the odds are against couples lasting until “death do us part,” says Cartier, who is also co-owner of the Academy of Financial Divorce Specialists. In fact, she says, Canada has already seen its first same-sex divorce. So, a prenuptial contract or a marriage agreement is good idea to create an extra layer of protection.

Cartier insists that her common-law clients consider drawing up a cohabitation agreement.

“It allows them to set out parameters, with which both partners are comfortable, for dividing property in the event that they are no longer together,” she says.

By drawing up the relatively inexpensive document when the relationship is going swimmingly, couples can save themselves the headaches — and expenses — of civil suits down the road, she says.

Cartier provides her clients with workbooks to help them determine what would work best for them before they even meet with a lawyer.

“They should sit down and think about how they would like to divide things if it came to that, so that they are not sitting in front of the lawyer spending X amount of dollars an hour and just starting to think about it,” she says.

Kevin Cork, a CFP with The Absolute Group in Calgary, says cohabitation agreements can be a testy subject for an advisor to bring up — “It is a balloon-popping, rain-on-the-parade subject,” he admits — but it is nec-essary to do so.

Cork has seen too many cases in which homosexual partners have not protected themselves sufficiently. Until same-sex marriage was legalized in Canada last summer, the province of Alberta did not recognize same-sex relationships. So, he is accustomed to asking his gay and lesbian clients to define their relationships with civil documents.

He says one client couple did not take his advice, and the partners have been suing each other for the past five years — an emotionally and financially draining exercise that could have been avoided.

“If they had had a cohabitation agreement, the relationship would have been more clearly defined,” he says. “And, on a basic level, it would have been addressed right from the start.”

The process of drawing up a cohabitation agreement can also act as a litmus test to determine whether the partners are ready to start planning a financial future together, he adds. IE