Collaboration among financial professionals, family law, and trust and estate counsel is paramount for clients to understand the effect that a prospective marriage has on his or her estate. Efforts should be made to advise clients to seek the advice of counsel prior to their marriage, be it the first, second or third. Based on the jurisdiction, there are often state-specific laws that will immediately give a new spouse rights to inherit all or a portion of a client’s estate upon marriage. Clients having the knowledge and guidance before jumping into a marriage will give them the ability to plan appropriately. This is especially true for those clients who have their own children or grandchildren or significant assets prior to entering the marriage.
Individuals often believe that a will or a trust will legally and effectively control the distribution of their estate. Unbeknownst to them, upon their death, state statutes that give rights to specific parties or restrictions of certain assets from being devised to specific parties will reallocate the division of those assets.
Understanding Domicile
Since the aftermath of the pandemic, and as clients have become more mobile, often traveling between multiple residences in different states, it is important for the investment professional to consider which state’s laws may be applied to the estate upon the client’s death. Based on a client’s residency, the laws can change. The client should be advised to consult with counsel in the newly domiciled state as to the existing trust and estate plan not only for tax purposes but also to review and provide a legal analysis if any changes and updates to the documents should be made so that they legally devise the assets in accordance with the client’s wishes.
Counsel should consider the effect of any governing law clauses included in the documents such that the implications of any applicable statutes are considered and drafted to avoid their effect, if necessary. If the newly domiciled state statute would negate the intent of the client, the client could consider the necessity of drafting a pre or postnuptial agreement that would preserve and protect their rights and intentions.
For example, Florida’s Elective Share Statute 732.201, allows a surviving spouse an election to take against what was left to him or her in the deceased spouse’s will or trust, typically allowing the surviving spouse to take a percentage of the deceased spouse’s estate. This statute would potentially circumvent all the careful planning, work and money expended by the client crafting a trust and will intended to carry out their wishes with a lawyer who is unfamiliar with this Florida-specific statute.
The Importance of Prenuptial Agreements and their Effect on the Estate Plan
Many people have the misconception that prenuptial or postnuptial agreements are legal instruments that only indicate who gets what in a divorce; in reality, however, they most often also dictate what the surviving spouse shall receive in the event of the death of a spouse. These provisions can expand or contract the rights given in a trust or will. This preserves the client’s ability to direct and control the distribution of their assets and avoids the dictates of any applicable statute that could require a specific percentage to pass to the surviving spouse.
While the party at the time of marriage may not have significant assets, the right to have a prospective spouse execute a waiver of statutory rights in advance of the marriage through a prenuptial agreement could be a sufficient basis to warrant the execution of the agreement. And, the need for these types of waivers is even more acute in those instances where the spouses have children from prior relationships that they would like to ensure are provided for and further that the surviving spouse cannot disinherit. In some states, even the assets held by a trust could be subject to the statutory provisions.
If your clients find themselves married and did not execute a prenuptial agreement, and are in the process of estate planning, you can consider a postnuptial agreement. The postnuptial agreement, at least in most states, will require all of the disclosures and consent of the parties, but then operates similarly to a prenuptial agreement.
If your client has not or desires not to execute a pre or post nuptial agreement, the estate planning should account for spousal rights within the estate planning documents as best as possible. In Florida, there are strong laws pertaining to homestead property.
If a person with children dies as sole owner of homestead property in Florida, unless the homestead rights are waived by a valid agreement, a surviving spouse will inherit a life estate in the property and the decedent’s children will inherit a remainder interest. Any devise to the contrary will be invalid.
The Good, the Bad and the Ugly on Marital Trusts
The Good. In second or third marriages, estate attorneys commonly draft marital trusts for clients looking to devise some of their assets or income therefrom to a spouse with the remainder of the assets held for their children after the surviving spouse dies. This can be an effective estate tax tool as well as a way to consider the needs of the client’s spouse during his or her lifetime, but still have the assets ultimately pass to the children.
The Bad and Ugly. When marital trusts are created, be it through an inter-vivos trust or testamentary trust, for a new spouse and the remainder beneficiaries are the client’s children from a prior marriage, there can be unintended consequences. Many marital trusts create animosity and contention between the beneficiaries as the potential for the interests of the spouse and the children not being aligned is greater. (The surviving spouse and step-parent to the sole children of the decedent may be inclined to use as much of the marital trust assets as he or she can get, while leaving little remaining to the remainder beneficiaries). In these circumstances, it is crucial for clients to carefully consider the selection of a trustee(s). The Ugly truth is that litigation is always a possibility with blended families, and having a good estate plan has the potential to minimize litigation among the beneficiaries. Clients should consider separating inheritances for their loved ones into separate trusts which will ultimately leave less room for beneficiaries to fight over.
Elisabeth Salvadore is a Partner at Brinkley Morgan in South Florida who focuses her practice on all areas of Marital and Family Law. Salvatore A. Polidoro is an Associate at Brinkley Morgan in South Florida who represents high-net-worth individuals, families, and business owners in a wide variety of complex taxation and trust and estate matters.