The Role of a Prenuptial Agreement in Estate Planning

//The Role of a Prenuptial Agreement in Estate Planning

The Role of a Prenuptial Agreement in Estate Planning

You may think of prenuptial agreements as contracts created in anticipation of divorce. While a standard prenup will contain provisions regarding the distribution of assets should the couple divorce, an agreement executed in anticipation of marriage can also be an estate planning tool. When contemplating either type of measure, it is important to understand the relationship between the agreement and the rights of a surviving spouse, and to create documents that work in concert to achieve the intended result.

The Prenuptial Agreement and the Surviving Spouse’s Elective Share

Perhaps the most common and significant ways a prenuptial agreement can impact estate planning involves waiver of the surviving spouse’s elective share.

Under New Jersey law, one spouse can generally not fully disinherit the other. Rather, the surviving spouse has the option of taking what is bequeathed to him or her in the will, or “electing against the will.” A spouse who chooses to claim the elective share is entitled to 1/3 of the “augmented estate.” However, the right to an elective share can be waived in a prenuptial agreement, assuming that the prenup is properly executed and was entered into voluntarily and with accurate information.

One situation in which spouses might choose to include such a provision in a prenuptial agreement would be when they entered into marriage later in life, after each had accumulated property and one or both already had children. In that case, each might agree to waive his or her right to the elective share in order to preserve their estates for their respective descendants. In other cases, the couple may simply agree to specific terms or limitations that will simplify inheritance, as the elective share calculation and the possibility of recoupment of assets is complicated, may impact third parties, and can be expensive.

Waiver of the Intestate Share

When one spouse dies without a will, the other is entitled to a significant share in the deceased’s estate—in some cases, the full estate. Like the elective share, the right to an intestate share of a spouse’s estate can be waived by agreement. It is less likely, however, that a provision waiving the right to intestate succession will be necessary or will ultimately impact distribution of the estate, since a couple that has taken steps to enter into a prenuptial or postnuptial agreement is likely to have also engaged in responsible estate planning, including the creation of wills or trusts.

Waiver or Limitation of Other Claims

While waivers of the elective share and/or intestate share are the most clearly tied to estate planning, other elements of a prenuptial agreement may also impact distribution of assets after the death of one spouse. For example, one or both spouses may waive the right to the other’s retirement accounts, which in some cases would otherwise be guaranteed by federal regulations.

Integrating Prenuptial and Postnuptial Agreements with Estate Planning

Some couples execute prenuptial agreements prior to marriage, but don’t formulate or update their estate plans until later. Some enter marriage with wills and other estate planning provisions in place, and later enter into postnuptial agreements. Some have estate plans without marital agreements, and others have prenuptial or postnuptial agreements but no estate plans.

The appropriate level of planning and type of tools employed will differ from couple to couple, depending on factors such as age, pre-existing children, relative wealth, and personal preference. However, it is always important that these items are considered in conjunction. A couple entering into a prenuptial agreement should be sure that they understand exactly what impact that agreement will have in terms of estate planning. Similarly, a couple or married person consulting an estate planning attorney should ensure that the attorney is aware of any prenuptial or postnuptial agreement.

In short, married couples or people anticipating marriage should avoid the too-common mistake of treating prenuptial or postnuptial agreements and wills and other estate planning documents as entirely separate and unrelated protections.

By |2018-08-08T16:31:26-05:00October 16th, 2017|Estate Planning|

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