Save and Invest

Take 3 steps to protect your assets if you're LGBTQ, say experts: This is 'our first recommendation to every couple'

Katleho Seisa | E+ | Getty Images

When it comes to money, members of the LGBTQ community can be vulnerable targets for malicious actors. Although legal protections and social acceptance have come a long way in the U.S., there's still plenty of room for improvement.

That's especially true considering the growing amount of legislation restricting transgender and nonbinary health care, challenging LGBTQ expression and censoring education on sexuality and gender identity. A record 520 anti-LGBTQ bills have been introduced in state legislatures in 2023, according to the Human Rights Campaign.

One area that many people overlook: estate planning. Making arrangements for the possibility that you die or become unable to make decisions for yourself can be difficult for anyone, but if you're a member of the LGBTQ community, you'll want to take additional steps to protect your assets.

That's because you should be the person making decisions for your future, regardless of your gender identity or sexual orientation — not a hostile family member or the law.

Here are three steps you can take to protect your assets and personal desires.

1. Put your wishes in trusted hands

The idea of a "chosen family" has been common in the LGBTQ community and other marginalized groups for generations. 

Simply put, it's the idea that your family — for the purposes of emotional and physical support, living accommodations, etc. — doesn't have to be biological. Your chosen family may include a romantic partner or any number of close platonic relationships.

Chosen families are common in the LGBTQ community because so many members have been ostracized or completely cut off from their biological families due to their gender or sexual identity.

But if you die or become physically incapacitated without a legal will or designated power of attorney, the person who will make decisions on your behalf usually defaults to a spouse or family member. That means anyone who would have a problem with their family members making decisions on their behalf should get legal documents drawn up ahead of time. 

"I can't tell you the number of times that I represented partners who were thrown out of what they thought was their own home by hostile family members after the death of their partner [because] they hadn't taken the steps to document any wishes in writing," Joseph Hahn, a wealth advisor at J.P. Morgan Wealth Management who wrote a white paper on the estate planning challenges facing the LGBTQ community, tells CNBC Make It.

"Our first recommendation to every couple, regardless of whether you're married or not, is get basic estate planning documents in place — wills, trusts, powers of attorney, health-care directives, revisit all your beneficiary designations. Do not rely on default state laws," Hahn says.

Without these documents, "that kind of vacuum is the playground for hostile family members to come in and take control and cause incredible pain," he says.

2. 'Bulletproof' your planning documents

"LGBTQ+ persons may need to take extra care to 'bulletproof' estate planning documents from the attacks of family members," Hahn wrote in the white paper.

Not only can these family members step in if you don't have documents in place, but there is a possibility they could contest your will or try to convince a court that you didn't have the mental capacity or were unduly influenced when you made your arrangements in order to override your wishes.

"The most common claim by hostile family members to attack estate planning is inadequate mental capacity or undue influence by their partner," Hahn says.

You can bulletproof your estate planning documents by making it explicitly clear those family members are not to receive any assets or make any decisions on your behalf.

To do so, start by working with an estate attorney. Emphasize the need to keep these family members out of your plans and add "no-contest" provisions that penalize legal attacks on your estate, Hahn says.

Additionally, you can ask your primary care doctor to provide documentation, such as a letter asserting your mental capacity and ability to make decisions for yourself, in order to defend against possible questions about your state of mind.

3. Prepare for legislative or life changes

Same-sex marriage might be federally legal in the U.S. now, but that could change in the future. That means married or not, couples should take steps to ensure their last wishes are honored, Hahn says.

For young people who might not have a ton of assets yet, he recommends reviewing your beneficiary designations regularly to make sure it's the right person.

"Those are the areas where people tend to make the most mistakes, especially if you're unmarried, you'll frequently write in a girlfriend, boyfriend or partner," Hahn says. "Beneficiary designations are a key place to focus and make sure that they currently reflect your objectives about who should receive your assets."

Additionally, if you or your beneficiary use, or will in the future use, names or pronouns different from what's on your legal identification, you'll want to make sure your estate planning documents are consistent or amenable to those changes.

Some state documents may even include gendered language that can cause confusion when it comes to dispersing assets, says Cait Howerton, a certified financial planner with Archer Investment Management who specializes in money management for the LGBTQ community.

"Find an estate attorney that is willing to de-gender or to make sure [the paperwork is] gender-neutral, and write the documents using a person's chosen name, because it can cause complications," Howerton tells CNBC Make It.

DON'T MISS: Want to be smarter and more successful with your money, work & life? Sign up for our new newsletter!

Get CNBC's free Warren Buffett Guide to Investing, which distills the billionaire's No. 1 best piece of advice for regular investors, do's and don'ts, and three key investing principles into a clear and simple guidebook.

What a brain expert eats in a day to boost memory and stay sharp
What a brain expert eats in a day to boost memory and stay sharp