Prenuptial agreements streamline estate planning
While it might not be as romantic as a candlelit dinner, crafting a prenup could be one of the wisest moves you make with the person you plan to marry —like making sure you have a map before you start a long journey. This legal contract does more than just protect assets; it sets clear expectations and boundaries that can help strengthen your partnership from the start.
A premarital agreement, more commonly known as a prenup, outlines how assets will be handled during the marriage and in the event of a divorce or the death of one spouse. While often associated with the wealthy, prenups serve practical purposes for many couples, especially regarding estate planning.
How prenups fit into estate planning
Why include a prenup in estate planning?
1. Protect assets. Prenups allow individuals to designate certain assets as separate property, ensuring they remain with the original owner or, after their death, are passed on to children from previous relationships. This is particularly important in community property states like Wisconsin where, without a prenup, a spouse may automatically be entitled to a significant portion of all marital assets.
2. Clarify inheritance rights. A prenup can specify inheritance plans that might otherwise be automatically allocated under state laws. This can include ensuring that family assets, personal businesses, or specific financial accounts are inherited according to your wishes, rather than being subject to standard spousal inheritance laws.
3. Avoid future disputes. By clearly outlining asset distribution and spousal rights, a prenup can prevent potential disputes over estate distribution among surviving family members. This is critical when estates involve significant assets, blended families, or complex family dynamics.
4. Facilitate estate and tax planning. Prenups can work alongside other estate planning tools like trusts to maximize tax benefits and ensure asset protection. For instance, using a prenup in conjunction with an AB, or bypass, trust can help use both spouses' estate tax exemptions efficiently, potentially saving a significant amount in estate taxes after the death of one spouse.
Legal considerations and limitations
While prenups are powerful tools, there are limits regarding what they can cover. For example, they can't dictate non-financial terms or appear grossly unfair to one party. Child support and custody can’t be predetermined in a prenup. Also, both parties must fully disclose their assets and sign the prenup without coercion; failure to meet these conditions could render the agreement invalid.
For those considering a prenup, especially with significant assets or specific wishes for asset distribution after death, it's wise to consult with an estate planning attorney. They can ensure that the prenup aligns with state laws and works effectively with other estate planning instruments to protect assets and honor your legacy wishes.
By Sonja Davig, Family Law Attorney at Johns, Flaherty & Collins, SC. For more informationon prenuptial agreements and family law, call her at 608-526-9320. 