A client who is considering a second (or third or more) marriage often has more complicated estate planning needs than a single client or a client who has been married only once. A premarital agreement can be key to protecting a client’s assets, but the attorney must make sure the agreement is integrated with the client’s estate plan. At the National Academy of Elder Law Attorneys’ 2010 Elder and Special Needs Law Annual Meeting in Orlando, Florida, earlier this year, Virginia estate planning attorney Martin J. Ganderson discussed how to plan for a second marriage and outlined the various estate planning issues that premarital agreements must take into account.
In a second marriage, a client may want his or her children, rather than the spouse, to be the beneficiary on a retirement account. Under ERISA, however, the spouse is entitled to the benefits unless he or she voluntarily waives them. A premarital agreement can address this by stating that the spouse gives up all rights to retirement accounts. Nevertheless, Ganderson stressed the importance of following up with the client after the marriage to make sure the spouse actually signs the forms waiving that right.
If the spouse remains the beneficiary of a retirement account, the premarital agreement needs to address what to do with the account in the event of divorce. The spouse can sign a form that renounces the right to the retirement plan in the event of divorce, but Ganderson cautioned to be careful how that waiver reads. The wavier should allow the owner of the policy the right to change the beneficiary as much as he or she wants without getting approval from the spouse each time.
Premarital agreements are void under only two circumstances: The agreement was not voluntarily executed or the agreement is unconscionable and one party did not have full disclosure of assets. To prevent a void agreement, Ganderson addresses future assets as well as current assets in the premarital agreement. He has the client get a financial statement from a CPA so that his or her finances are out in the open. In addition, before the signing of the premarital agreement, Gunderson has both parties sign a statement waiving any further disclosures.
Avoiding Conflicts Involving the House
One area where it is crucial to make sure the premarital agreement is integrated with the estate plan is with regard to the residence. For example, while many premarital agreements provide that the surviving spouse may remain in the residence, the house may be in a revocable living trust that goes directly to the children. To avoid such conflicts, Ganderson tries to have the estate plan completed before the marriage.
One option for clients who want to allow a surviving spouse to continue to reside in the home is for the wealthy spouse to set up a trust to provide for maintenance on the house. Many clients put restrictions on the surviving spouse’s right to stay in the house. For example, a wife may allow a husband to remain in the house as long as he doesn’t bring a member of the opposite sex into the home to spend the night. When it comes to the house, Ganderson stressed that it is important to be as specific as possible in the premarital agreement.
POA and QTIP Issues
A general power of attorney also must be integrated with a premarital agreement. The power of attorney can frustrate even the best agreement by allowing the attorney-in-fact to gift away the client’s assets. Ganderson recommends making sure that the attorney-in-fact does not have the power to amend the premarital agreement. Ganderson also suggests that if the client’s estate plan includes a revocable trust, the trust agreement should provide that the attorney-in-fact does not have authority to amend the trust.
If a client’s estate plan includes a Qualified Terminable Interest Property (QTIP) Trust, the client will need to consider whether the principal of the trust can be invaded for the benefit of the spouse. If the principal can be invaded, Ganderson suggests requiring the spouse to provide a financial statement to prove the need for the principal, or risk being cut off from the trust completely.
Other issues that need to be addressed up front with the client when doing estate plans and premarital agreements for second marriages include whom to name as a health care agent and whether there is a duty on one spouse to support another if nursing home care is needed.
The attorney’s job is not done once the client ties the knot. Follow-up is often necessary to make sure the client follows through on agreed-upon items. For example, if a premarital agreement addresses how assets are going to be titled, Ganderson explained that it is important to check back with clients after they are married to make sure they actually change the title.
To order the streaming video of this and other sessions from the Orlando meeting, as well as accompanying session materials, visit NAELA’s Web site, www.naela.org, and click on the Online Education Library tab under Events.
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