18 May 2016

Don’t Disinherit your Children or GrandChildren : Use a Pre Nuptial Agreement and Marital Trust

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Here is an all to common  problem in estate planning:   Dad (usually it is the Dad not the Mom who creates this problem) is a single parent due to the death or divorce of his children’s mother.   Dad remarries but doesn’t do a pre-nuptial agreement or post-nuptial agreement.  Worse, he does a will or living Trust and names his new wife as beneficiary of his estate.

What has Dad done when he dies?  He has effectively disinherited his own children and grandchildren!   This is because when Dad dies, his new wife inherits all or most probate property or living trust property.   This is because  Dad left his estate to his new wife.  The new wife has no legal obligation to pay any of the probate or trust estate over to Dad’s children or grandchildren.   Thus she inherits everything, and when she dies, Dad’s estate goes to HER family, likely her own children, NOT Dad’s children or grandchildren.

This problem occurs frequently because as parents age, they simply don’t stop to think of the consequences of naming a new spouse the beneficiary of their estate.   Often a son or daughter will come to my office with the complaint that Dad died and left everything to his new spouse.

There are a couple of possible solutions that may help to prevent the above from happening.  First, when Dad and Mom were married, they should consider executing a will or living trust that contains a provision for a Marital or Family Trust.  A Marital trust is one that becomes irrevocable at the death of the first parent and names their children as the ultimate beneficiaries upon the death of both parents.  When one parent dies, typically, the deceased parents separate property and 1/2 of his or her community property is transferred into the irrevocable Marital trust, for the benefit of the surviving spouse but for the ultimate benefit of the parents children and/or grandchildren.  Thus if Dad remarries, whatever property remains in the Marital Trust when Dad dies, should go to his own kids and grandchildren, not the new spouse.

Also, before a remarriage, the surviving parent should seriously consider executing a pre-nuptial agreement.  A pre-nuptial agreement  is an agreement between the surviving parent and new spouse where they agree that property existing and owned by each spouse before the new marriage is the property of each spouse.   (Some states, like Colorado, permit couples in a marriage to execute such an agreement after their marriage.  This is called a post-nuptial agreement).   So, if Dad owns  in a home, 401k and IRAs, and other assets existing prior to the new marriage, the parties are agreeing those assets are Dad’s separate property, not marital property, at least for divorce purposes.   Even with a pre-nuptial agreement, however, Dad must take care to name his children and/or grandchildren as the ultimate beneficiary of his estate as he may still give his new wife that separate property in his new will or trust, if he is not careful.

In this example, the best one-two punch to protect a couples children and grandchildren is for the parents of the children to have a marital or family trust provision in their will or trust while they are both alive.  Then if one later remarries, to execute a pre-nuptial agreement upon remarrying.  This, of course, also applies where Dad dies first and Mom wishes to remarry.

An interesting article discussing this problem where Dad died leaving no will can be found at Marketwatch.com:


My commentary and solutions discussed in this article and with the Marketwatch article constitute legal information, not legal advice.   Possible solutions discussed may or may not apply to your situation and vary from state to state, and  may not be available in the state where you reside.   If you are a Colorado resident, please feel free to call me for a free consultation at 303-457-9500.  Alternatively, be sure to discuss these issues with a competent estate planning attorney before taking any action.

James Morgan, Esq., CFP®


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