Estate Plans Vs. Prenups: How Both Can Benefit You

Dec 8, 2022 | Protecting Assets

[This article was written by Patrick Hicks, Head of Legal at Trust & Will, the premier online estate planning and settlement platform]

Getting married is a significant life event that can trigger couples to want to get their affairs in order. Both prenups and estate plans are becoming increasingly popular thanks to companies like HelloPrenup and Trust & Will, which have made each respective process more accessible to all. But what is the difference between estate plans and prenups? If you have one, do you need the other? I’m here to explain the unique advantages of both prenups and estate plans, how they’re different, and why you should consider having both.

Prenuptial Agreement Definition & Advantages

A prenuptial agreement, or prenup for short, is a written contract you set up before entering marriage. You take this action together with your soon-to-be spouse to establish certain expectations regarding the division of property and assets. The contract establishes each spouse’s rights upon entering the marriage, along with what happens if the marriage ends through divorce or death.

Prenups can be particularly useful if your financial values deviate from your state law’s defaults. For example, California is one of several community property states. Any property acquired during a marriage is considered community property and is thus split equally amongst two spouses if they were to get a divorce, regardless of who purchased that property. What if you don’t agree with that? A prenup is your legal solution.

By entering a prenup, any agreements made will supersede the default family laws of your state. As a couple, you are intentionally deciding to opt out of the default system and opt in to a system of your own creation. By working collaboratively with your future spouse, a prenup can help you pre-agree and pre-solve some big questions in the case you were to get a divorce. While divorce might seem implausible now, it does end up happening for many couples. Contested divorces can get ugly, not to mention expensive and drawn out. Having a prenup in place can help ensure that a divorce, if it were to happen, will go smoothly and help lessen the impact of potential conflict.

Although prenups are often associated as a tool used by wealthy individuals, they are increasingly commonplace. This can be attributed to a variety of reasons. For starters, half of marriages in America end in divorce or separation. For couples getting married in this environment, they may have a stronger incentive to protect their assets. Further, couples are increasingly getting married later in life and have accumulated more assets or businesses to protect. Last but not least, a high divorce rate also results in second or third marriages that result in mixed families with children from previous marriages. Prenups are a smart tool that can help bookmark and protect assets that you want to preserve specifically for children from previous marriages. This is especially true when your state’s default laws would not help you achieve your desired outcomes.

Our friends at HelloPrenup provide a detailed questionnaire that helps modern couples have important conversations and to come to agreements that both partners can be happy with. Their services come at a quarter of the cost of an attorney, making the process accessible for any couple regardless of their wealth status.

Estate Plan Definition & Advantages

An estate plan is a set of legal documents that address what should happen to your estate if you were to pass away or if you were to become incapacitated. It’s your opportunity to set things up such that you get to have your say long after you’re gone. Estate planning provides access to a number of different legal tools, and are highly customized per each individual’s unique circumstances and desired outcomes. Common documents you might find in an estate plan include a Last Will and Testament, a Trust, Living Will, and Power of Attorney. 

In the absence of an estate plan, it is said that the person has died “intestate.” This means that the courts are forced to use state probate laws to determine how that person’s property should be divided. Much of probate law was designed at a time when the majority of Americans were involved in a traditional family dynamic and relationships were mostly straightforward. If you’re lucky, the default laws would result in outcomes you would agree with. However, today, this is seldom the case. 

Many of us are in mixed families, have gone through a divorce, or are perhaps even estranged from our closest family members. Creating an estate plan is our legal avenue to exercise our rights and have a say over what should happen to our property.

Those new to estate planning are often surprised to find out that the process can also address important things that have nothing to do with the division of property. 

For instance, you can address your final arrangements in your Will. Want to be cremated instead of buried? Don’t want a funeral? Want to donate your body to science? Do your religious views contradict the views of your parents or partner? Your estate plan is the official place to make these wishes known, and to obtain peace of mind knowing that your wishes must be honored.

Your estate plan is also where you can appoint a Guardian, a Conservator, or various Powers of Attorney. These are important documents that legally authorize a person you trust to step in and take care of important matters or important people in your life when you aren’t available. 

Last but not least, have you ever thought about what should happen if you become terminally ill? Do you want to be kept on life support? Are there any treatments or life-sustaining interventions that you don’t want? Who do you trust to make medical decisions for you? Your Living Will and Medical Proxy are important pieces of your estate plan that have nothing to do with assets nor death. They have to do with important decisions regarding your medical care should you become incapacitated due to illness, injury, or mental health crisis.

There are a myriad of benefits to estate planning that many people don’t often realize. Trust & Will offers a full educational library with quick-read articles that can help you learn more about the estate planning process and the benefits it could offer. 

Estate Plans Vs. Prenups: Similarities & Differences

You may have already noticed an interesting parallel between prenups and estate plans. In the absence of either type of legal instrument, the state’s default laws are used. In the absence of a prenup, then property is divided using the state’s family laws. In the absence of a will, a person has died intestate and the probate court must use state probate laws by default. By establishing a prenup and an estate plan, an individual gets to specify their preferences that supersedes the state default. 

A key difference between estate plans and prenups is when they go into effect. A prenup is triggered by the dissolution of marriage or divorce, as well as the death of one of the spouses. In contrast, a will is only triggered by death. 

This brings up an important difference. In the event of a death, both a prenup and an estate plan can be triggered. What does this look like?

Unfortunately, prenups can result in claims against an estate. For example, let us say that you are married and have a prenup with your spouse stating that either spouse should get half of everything. However, you pass away, and your estate plan leaves a directive stating that your brother should inherit the entirety of your estate. Here, your spouse has legal leverage to file a claim against your estate. 

Not only are prenups and estate plans different, they can actually conflict with one another and create tricky legal challenges. Prenups live in the area of family law, while estate plans live in the realm of probate and estate planning law. The two result in an interesting crossover that can work in parallel with one another, but when things go wrong, can result in disaster. Couples should be careful to draw up prenups and estate plans in coordination with one another as a holistic strategy.

It’s also important to understand that prenups do not serve as a substitute for an estate plan. First, prenups don’t address important matters such as guardianships or final arrangements. Second, a prenup is a contract solely between two individuals and determines their rights relating to one another. In contrast, an estate plan determines your relationship with the rest of the world. Prenups only address the protection and division of assets with your spouse. Your estate plan can be used to address the protection and division of assets amongst the rest of your family members, and even organizations or non-profits that you support or belong to. A prenup defines certain property rights while your estate plan is used to exercise those rights upon your death. 

In the next section I present my answers to commonly asked questions that can help paint an even more colorful picture of how estate plans and prenups differ while also playing into one another.

 

Estate Plans Vs. Prenups: FAQs

  • Q: Aren’t prenups and estate plans just for wealthy individuals?
  • A: Not necessarily! There are many scenarios in which both prenups and estate plans are used to protect yourself and your loved ones, even if you’re not dealing with a great amount of wealth. Let’s say you’re a Millennial earning a less-than-great income, so your parents step in and help you buy a house. Your parents stipulate that if you were to get divorced, they wouldn’t want their son or daughter-in-law to automatically get half of the house. Here, you could agree to a prenup to ensure that your house is separate property, and then you could use your estate plan to specify that if you were to pass away, the house should go to the person of your choosing.
  • Q: What happens if I signed a prenup with my spouse, but I later set up a trust that conflicts with my prenup. What should I do?
  • A: Know that conflicting information between a prenup and a trust can result in a tricky legal situation. If the trust was signed together with your spouse, then it could potentially overrule the prenup. If you set up the trust alone, and your spouse didn’t sign, then your spouse’s claim to property could survive based on the prenup. If you choose to have both a prenup and estate plan, which is a good idea, then you should be careful to coordinate the two.
  • Q: What is covered in a prenup that can’t be covered by an estate plan?
  • A: A prenup, or the absence of a prenup, can expand or limit your abilities of what you can dispose of with your trust. For instance, let’s say you are a wealthy individual and your spouse agrees to sign a prenup. Instead of disposing half of your income to your spouse due to community property law, your spouse agrees to take set amounts based on the number of years of marriage. Based on the contents of your prenup, the amount of wealth you can or cannot designate to other loved ones are limited or expanded. Further, you can’t waive your spousal rights to things that you’re otherwise entitled to using an estate plan. A trust, for example, won’t allow you to have a forward-looking agreement with a spouse to convert community property into separate property. Only a prenup can do that.

 

Estate Plan & Prenups: Why You Want Both

Estate plans and prenups are dynamic, powerful legal instruments that allow you to have a say over what should happen in the case of divorce or death. However, as highlighted in this guide, they belong to entirely different areas of law. Although they have a lot of crossover, one cannot replace the other. Further, they are very different in terms of legal objectives. 

A prenup, simply put, is used to expand or limit your spousal rights in the case your marriage ends in divorce or death. For instance, if you live in a community property state, you might agree that certain property acquired during the marriage will not be considered community property and should be treated as separate property. A prenup supersedes the state’s default.

Similarly, an estate plan supersedes the state’s default laws pertaining to probate and estate planning. You can leverage an estate plan to exercise your rights, and have a say over what should happen to your property. Note that your estate plan addresses all of your property, not just property impacted by marriage or divorce. Further, an estate plan can be used to appoint guardians, powers of attorney, and medical proxies. It can also be used to make final arrangements as well as address your wishes for your medical care, amongst many other things. 

A prenup does not replace an estate plan, and an estate plan does not replace a prenup. Those who would like to implement a holistic strategy to protect themselves, their loved ones, and their assets can choose to use both a prenup and an estate plan. Because the two legal instruments have a lot of crossover, they should be careful not to create any conflicts and take a holistic approach and coordinate effort in their strategy. 

 

 

All content provided on this blog is for informational purposes only. HelloPrenup, Inc. (“HelloPrenup”) makes no representations as to the accuracy or completeness of any information on this site. HelloPrenup will not be liable for any errors or omissions in this information nor for the availability of this information. These terms and conditions of use are subject to change at any time and without notice. HelloPrenup provides a platform for contract related self-help. The information provided by HelloPrenup along with the content on our website related to legal matters (“Information”) is provided for your private use and does not constitute legal advice. We do not review any information you provide us for legal accuracy or sufficiency, draw legal conclusions, provide opinions about your selection of forms, or apply the law to the facts of your situation. If you need legal advice for a specific problem, you should consult with a licensed attorney. Neither HelloPrenup nor any information provided by Hello Prenup is a substitute for legal advice from a qualified attorney licensed to practice in an appropriate jurisdiction.

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