Prenuptial agreements may include or mention some information about your assets in the event of your death (known as your estate). Now, keep in mind, prenups are not estate plans that fully flesh out what should happen upon your death; the only way to do that is through wills and trusts. However, you may be able to make certain decisions to protect your estate in your prenup. Keep reading to find out how.
Why Address Estate Planning in a Prenup?
Estate planning can be a sensitive topic for many couples, but it’s essential to discuss it before tying the knot. Depending on your state law, it may be challenging to disinherit your spouse. State laws differ significantly, but generally, it is not possible to completely exclude your spouse from your will unless you both agree in writing.
For instance, you may not be able to leave the majority of your assets to your children, even if they are from a previous marriage. Regardless of your desire for your children to inherit most of your assets, spousal rights in your state may be more potent than the rights of your offspring. Even in the situation where you inherit assets from your parents, you may not simply leave those inherited assets to your children (or siblings) because they are also subject to spousal rights.
This is where a prenuptial agreement can come in handy. It is a perfect example of when and how a prenup can be a useful tool for estate planning. A prenuptial agreement is one of the best ways to guarantee that your spouse only receives the portion of your estate that you want them to and how you would like them to receive assets, for example, in trust with then guaranteeing assets go back to only your children (not their next, future spouse).
How to Address Estate Planning in a Prenup?
Keep in mind that a prenup is not the same thing as an estate plan. They can coexist, but estate planning documents, such as a will and trust, are still necessary to execute to ensure your separate assets are taken care of after you die.
Putting a death clause in your prenup can help make sure that your assets are distributed according to your estate planning documents. In other words, with a death clause, you can make sure your separate assets go to the beneficiary of your will or trust.
For example, let’s say in your will the heir to your fortune is your sister Joan (after all, the fortune comes from your family). You want to make sure that Joan gets your separate property assets upon death, not your spouse. With a death clause, you can make sure that this happens.
Identify your assets and debts
One important step is to create an inventory of your assets and debts, including bank accounts, real estate, investments, and personal property. You should also disclose any outstanding debts or liabilities, such as credit card balances or loans. This is all pertinent to the financial disclosure part of the prenup-making process.
Determine how to divide assets and debts
Once you have identified your assets and debts, you need to decide how to divide them in case of divorce or death. You can agree to split them equally, or you can assign specific assets or debts to each spouse. You should also think about what you want to happen when you die. This may partially be taken care of in a prenup but mostly will be done via estate planning documents.
What happens to your half of the marital property? Let’s say you two bought a house during the marriage 50/50 together. Does your spouse get the other 50% when you die, or can that pass to the heir of your estate? If the prenup is silent on this issue, usually marital property passes to the surviving spouse automatically. Alternatively, a more sophisticated option you may prefer is that the surviving spouse lives in the property until death, at which point the property passes equally to your respective heirs.
Consider trusts and wills
Outside of a prenup, you should consider trust and wills to ensure your assets are distributed according to your wishes in your death.
Examples of address your estate in your prenup
This concept of the intersection between estate planning and prenups can be quite complex! Let’s use some examples to help parse out the details.
Scenario 1: Utilizing a death clause in your prenup, and you have an estate plan.
Katie and Kevin are getting married and signing a prenup. In their prenup, Katie wants to make sure that her separate assets go to the beneficiaries of her estate. In her will (i.e., her main estate planning document), she names her only child from another relationship as the heir to all of her separate assets and the remainder of her assets to her spouse. So, with this in mind, Katie adds a death clause into their prenup to make sure that her separate property goes to her child. If Katie dies before Kevin, her separate assets should go to her child, and her share of the marital assets should go to Kevin because her prenup authorizes this, and then her will directs this.
Scenario 2: Not putting a death clause in your prenup and no estate plan.
Danielle and David are engaged to be married and are executing a prenup. In their prenup, they do not include a death clause. David has a child from another relationship, and David does not have a will or trust in place. If David dies before Danielle, state law will not likely distinguish between separate and marital assets. While there may be marital assets that automatically pass to Danielle, it is also likely that a portion of his separate assets will go to Danielle instead of his child. Had David had a death clause and a will set up naming his child as the beneficiary of separate assets, the child would have gotten all of the separate assets.
Scenario 3: No prenup and no estate plan
Cara and Colin are married with no wills, trusts, or prenups in place for either of them. They each have one child from another relationship. If Colin dies, his property will pass according to state laws, which generally say some of the estate goes to the spouse, and some of the estate goes to the child. In this case, Colin’s estate may pass partially to his wife and partially to his child. This might not have been the ideal situation for Colin if he had wanted most of his assets to pass to his child. Moreover, Cara, as the surviving spouse, has inherited some of Colin’s assets, so her child may ultimately inherit more than Colin’s child.
At the end of the day, you should get both a prenup and an estate plan. Both can work together to make sure your wishes are met if and when you pass away. We know it’s not the most romantic thing to think about before getting married, but it’s a super important one!
Amy is the founding member of Law Offices of Amy Holzman PLLC (LOAH), which was established in 1999. Amy structures estate and gift tax plans for a wide range of clients. She also represents executors, administrators, trustees and beneficiaries in probate, estate and trust administration. She regularly lectures to various groups on an array of estate issues. Amy has decades of experience in this field and started her career at Debevoise & Plimpton in their trusts & estates group.