Cummings & Lockwood Estate Planning FAQs

Wealthy individuals contemplating marriage should consider entering into a premarital agreement.  As its name suggests, a premarital agreement is an agreement in writing entered into by the future spouses prior to marriage which contains provisions regarding ownership of property.  The Agreement may contain provisions regarding disposition of property upon marital dissolution, death, or the occurrence of any other event; modification or elimination of spousal support; ownership rights in death benefits from life insurance policies; and rights to retirement plans.  The parties may also agree to execute a Will or trust that reflects these provisions.

Each state’s law differs on the enforceability of premarital agreements.  Generally, a premarital agreement may be deemed unenforceable if it is not properly prepared or executed.  As a general rule, to render a premarital agreement unenforceable, one must prove that: (1) he or she did not execute the agreement voluntarily; (2) the agreement was unconscionable when it was executed or when enforcement is sought; (3) he or she was not provided fair and reasonable disclosure of the amount, character and value of property, financial obligations and income of the other party before execution of the agreement; or (4) he or she was not afforded a reasonable opportunity to consult with independent counsel.  Absent the existence of any such facts, a premarital agreement may be amended or revoked only by a written agreement signed by both parties.  Generally, courts will typically enforce a premarital agreement unless the terms are unconscionable either at the time it was executed or at the time of the separation.

It is important that an estate plan accurately reflect such person’s obligations under the premarital agreement.  The act of marriage will entitle the spouse to potentially contest the Will, elect against the Will and take an “elective share” of the estate.  Most states provide some sort of “elective share” for a spouse who was written out of his or her spouse’s Will.  Each state differs as to what is included and what is not included in calculating the elective share.  For example, New York includes assets held in a Revocable Trust at the time of death while Connecticut, currently, does not.

It is important for a person who has recently divorced to re-evaluate his or her estate plan, specifically the disposition of assets.  In addition, appointments of executors and trustees may need to be revisited, especially if the former spouse was named in either capacity.  While local state law may revoke any bequests or appointments in favor of the spouse automatically upon the entering of a divorce decree, it may not revoke bequests or appointments for the spouse’s other family members.

Divorce counsel should be consulted prior to changing any estate planning documents.  Many states issue protective orders as soon as a divorce is filed that prevent the parties from changing their estate plans until the divorce is finalized.

In many states, Revocable Trusts are not automatically revoked by divorce.  Instead, Revocable Trusts are governed by the terms of the document.  Thus, the creator of the trust generally will wish to amend the provisions of the trust to remove the former spouse as a beneficiary.

Irrevocable trusts generally also are not revoked by divorce.  Unlike revocable trusts, irrevocable trusts cannot be modified or terminated.  However, irrevocable trusts are often drafted to provide contingencies in the event of a subsequent divorce.

A thorough estate plan should take into account the possibility that one’s surviving spouse, children or grandchildren may be married, and also potentially divorced, during their lifetimes.  The impact of marriage and divorce law thus is quite relevant when structuring gifts or bequests to a spouse, children and grandchildren.

Many clients rightfully worry that gifts made now to a spouse, children or grandchildren may eventually inure to the relative’s spouse.  As a general rule, property one spouse receives by gift or inheritance should be accorded a somewhat different status than property resulting from earnings during the marriage, depending upon how long the property was held during the marriage, whether it has appreciated in value, whether the appreciation was the result of one spouse’s efforts and whether there is other property available for division.  Nevertheless, as discussed above, all or any part of the estate of one spouse may be awarded to the other spouse in a divorce and there can be no certainty as to how a judge will treat property received by gift or inheritance.

To reduce the risk that a spouse’s, child’s or grandchild’s gift or inheritance could be lost in the event of divorce, many clients chose to establish “spendthrift” trusts for their spouse, children or grandchildren rather than making outright gifts or bequests.  Children of spouses or spouses of children and grandchildren generally do not acquire any rights in properly-drafted spendthrift trusts created for the benefit of such person.  In a divorce or remarriage, the court may still consider the value as one factor when making an equitable distribution of property.  Nevertheless, the trust property should still enjoy greater protection than it would if such person owned such property outright.