Financial planning for modern families

After years of helping hundreds of families with their financial planning needs, it's become clear to me that there's no "one size fits all" family — and the definition of "family" can vary wildly depending on who you talk to.

Typically, we've referred to a traditional family as a married mom and dad with kids who are either their biological children or legally adopted. But there are lots of families out there that don't fit this description. Modern, or nontraditional, families can include LGBTQ couples, single parents, blended families, cohabiting couples, unmarried partners, grandparents raising grandchildren, children caring for aging parents and many other situations.

Whatever your family makeup, there are financial planning tools and concepts that are applied across the board. But modern families face some unique challenges.

Property ownership and division of income with unmarried partners

When it comes to married couples, each state has its own laws regarding property purchased before, during and after the marriage. But modern families don't always have these protections. It varies by state and also depends on the property involved.

For example, let's say the house you share with your partner is in their name only on the deed, but you take out a second mortgage together, in both of your names. What happens if you split up?

Like married couples, modern couples must decide how they will handle finances. Will you combine funds, split bills evenly, split bills based on income or some combination of these options? Who gets what if you separate? Unmarried couples should be aware that they might not have the same legal protections if they separate.

There are many ways for unmarried couples to manage the "yours, mine, ours" aspects. The bottom line: Be honest with all parties and prepare yourself for the various possibilities. You should seek out appropriate legal, tax and financial guidance from professionals who can tailor solutions for your individual needs and goals.

Budgeting and financial management

Good communication on finances is a must for any household, but it's especially important for modern families — the legal system, financial institutions and extended family may conflict with your wishes. Consider the following:

• Establish common financial goals. This can be as simple as saving for a vacation together or as complex as planning to adopt a child. Financial goals for modern families might be different from those of so-called "traditional" families, so keep in mind your unique situation.
• Create a comprehensive budget to track income and expenses. Although this applies to just about everyone, don't let money become a problem in your modern family.
• Manage joint finances and individual financial responsibilities. Discuss who will manage your money and make financial decisions.
• Address potential income disparities or unequal financial contributions. If one partner brings in more income than the other, how will that affect your relationship? Or perhaps one partner comes from wealth and the other from a background with more limited resources. What are your joint expectations about your money and goals?

Family planning and children

Modern families and blended families face unique circumstances whether they are starting a family from scratch or combining families from previous relationships.

• Foster care and adoption: Certain nondiscrimination laws^{See note1} may help protect LGBTQ foster parents and families from discrimination when seeking to provide foster care or adopt a child. But the laws can vary by state. Find yours on this foster care and adoption map.^{See note1}
• Surrogacy: Many traditional couples have considered surrogacy as an alternative for starting or adding to a family. There are multiple factors to consider when pursuing surrogacy, especially the legal rights of the parties involved. For same-sex couples, it can be especially important to understand your state laws concerning surrogacy and to seek appropriate legal advice as you navigate this option.
• Family leave: The federal Family and Medical Leave Act, or FMLA, ensures that certain employers allow unpaid leave for employees needing to care for certain family members, including a spouse or partner as well as children. Your state's laws may provide additional benefits or requirements. For more information, review the family leave laws map.^{See note1}

Insurance coverage

Protecting ourselves and our loved ones against losses is fundamental to financial planning. There are a few things to keep in mind when it comes to insurance coverage for modern families:

• Health care coverage: Health insurance companies must offer same-sex spouses identical coverage it offers to opposite-sex spouses. As long as a couple is married in a jurisdiction with legal authority to authorize the marriage, an insurance company can't discriminate against them when offering coverage. This applies to same-sex couples as well. Whether you're purchasing your insurance through the Health Insurance Marketplace or through your employer, it's important to know who can be considered part of your household–legally married spouses and tax dependents. And who can be considered a dependent–your spouse if legally married, and tax dependents.
• Life insurance policies: Life insurance can be an effective way to ensure that those whom you care most about are not financially burdened upon your death. Since death proceeds can pass directly to your named beneficiaries, this may help safeguard that your final wishes aren't entangled in the estate settlement process.
• Long-term care: Many of us worry about who will take care of us if, or when, we will require caregiving. For modern families, this issue takes on extra importance as there may be fewer caregivers willing and able in the family unit. It's critical to at least have a long-term care plan.

Tax Planning

Taxes can always be complicated, but if you're part of a modern family or household, you should be extra vigilant. That's because the nature of your relationship can affect taxes at the federal, state and local levels.

At the federal level, the IRS generally treats same-sex couples as married if the marriage was legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country. It's important to understand the rules for same-sex couples who are married under state law.^{See note1} Being considered as "married" is important because it can affect things like:

• Filing status.
• Claiming personal and dependency exemptions.
• Taking the standard deduction.
• Claiming the earned income tax credit, child tax credit, or adoption credit.
• Lifetime gifting.
• Unlimited marital deduction for large estates.

But keep in mind that the IRS's rules aren't the same for registered domestic partnerships, civil unions or similar formal relationships recognized under state law.^{See note1}

State laws regarding same-sex legal marriage can vary. That's why it's important to understand how you may be affected by state laws regarding marriage, domestic partnerships and civil unions.^{See note1} Again, seek professional legal and tax guidance to help in your specific situation.

Retirement planning

Planning for your own retirement can become even more complex when planning as a couple, married or not. In general, most of us aspire to have enough resources on hand when we retire to be able to maintain our lifestyle. While many retirement planning strategies may seem the same for everyone, a key factor is often whether you're legally married or not. That's why the decision for LGBTQ couples regarding marriage can take on extra importance when you plan for retirement.

Consider a few slight twists for modern families' retirement planning.

• Spousal IRA contributions: A retirement saving benefit available to you as a married couple is a spousal IRA — which can be either a traditional or Roth IRA. If you're a nonincome-earning spouse you can still save for your retirement in your own IRA account.^{See note1} To do so, the IRS stipulates you must be legally married according to their rules, there is enough earned income by the working spouse to cover all IRA contributions, and you file a joint tax return.
• Social Security retirement, disability and survivors' benefits: The Social Security Administration recognizes same-sex couples' marriages in all states, as well as some nonmarital legal relationships, such as some civil unions and domestic partnerships. That could affect your Social Security benefits, Medicare, and eligibility and payment amounts for Supplemental Security Income, or SSI. Don't forget that your children and stepchildren could be entitled to benefits as well. For more information, visit the Social Security webpage for same-sex couples.^{See note1} In addition, Social Security provides additional information regarding what same-sex couples need to know regarding benefits. ^{See note1}
• Retirement savings and required minimum distributions: When you're the beneficiary of someone's IRA, your relationship to that other individual affects how or when you must start taking distributions. For example, nonspouse beneficiaries of IRAs can't treat an inherited IRA as their own, which could affect their ability to delay required minimum distributions.^{See note1}
• Qualified Domestic Relations Orders: A QDRO allows a person involved in a divorce, legal separation, or dissolution of same-sex partnerships, the right to divide their retirement benefits with their former spouse. Also, where there is a pension involved, a divorced spouse may be eligible to obtain a QDRO when the former same-sex spouse is eligible for a portion of participant's benefit.^{See note1}

Estate planning

We all have many of the same concerns when it comes to estate planning: What will happen to us if we're incapacitated, how will our estate be distributed after our death, and how and when we will pass our estate on to our heirs?

Some special circumstances apply when it comes to estate planning for modern families, in addition to some of the property ownership issues we discussed earlier.

Here's an example: Morris and Becca aren't married and have been living together for eight years. During that time, they have shared everything equally and have accumulated a decent nest egg. They love each other dearly and tell each other they want everything to pass to the surviving partner. Like all of us, they're busy and never get around to doing any estate planning. Morris dies suddenly without a will in place. What do you think will happen to his estate? Will Becca end up with her fair share?

Or consider Julia, who's living with and caring for her ailing grandfather. Julia's parents are divorced and nowhere to be found, and her three siblings want nothing to do with his care. Grandpa has told Julia that he has a life insurance policy worth $50,000 that he wants to go to her. The beneficiary listed on the life insurance policy is Julia's grandmother, who passed away three years ago. What do you think will happen to the life insurance proceeds when Grandpa passes away?

These are just a few estate planning examples involving modern families, and show why it's vital to have in place proper estate planning while keeping in mind:

• The importance of powers of attorney, wills, trusts, beneficiary designations and guardianship arrangements for adults and minor children.
• The unique challenges related to inheritance laws while ensuring proper distribution of assets and protection of children, whether they're "his, hers or ours."
• The need to communicate your wishes to the family members who may be affected by your incapacity or death.

While your general goals may be simple, there are numerous strategies that may be employed to achieve your estate planning goals. Again, plan for the worst and always seek appropriate professional guidance.

LGBTQ and the military

The military has embraced diversity and lifted bans blocking service by those who are gay, lesbian, bisexual or transgender. Nevertheless, policies, attitudes and beliefs don't always change overnight. For a brief history of LGBTQ in the military and current policies, start with the following article published in Military OneSource.^{See note1}

Modern military families face some of the same concerns as modern civilian couples, but many benefits offered by the military are only available to married families, or married spouses and stepchildren. USAA provides more advice and resources for some of the unique needs and benefits for military spouses.

Parting thoughts

We've only touched a few key aspects regarding financial planning for modern families. Some key takeaways to consider are:

• Understand how your legal status under the eyes of the IRS, Social Security Administration, individual states and multiple other institutions can affect your financial well-being.
• Don't assume that everyone and every institution will know your unique needs and take care of you the same as any other person or traditional family. Communicate with those you care about and take action to fill any gaps in your financial life.
• Seek professional guidance from tax advisors, legal counsel, financial advisors and other family counselors to help achieve what you and your unique family deserve.