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How a Prenuptial Agreement Can Help in Estate Plans

Prenuptial agreements, or prenups, are almost always associated with marriage and divorce; however, they can also be a powerful tool for estate planning. This type of agreement can be used to clarify the rights and responsibilities of both spouses if one suddenly passes away. A prenuptial agreement can be used in estate planning to reduce family in-fighting and other legal issues by predetermining what the spouse is entitled to in the estate.

Using a Prenup to Prevent Estate Nullification

Most prenuptial agreements are made when one or both spouses come into the marriage with significant assets, land, or wealth, if one or both spouses have been previously married, or if children from a previous relationship are involved. One of the biggest advantages to a prenup for the purposes of estate planning in these situations is that the agreement prevents the spouse from nullifying the existing estate plan.

Typically, a spouse can elect to take a statutory percentage of the estate, determined by state law. This is usually done if the will leaves less to the spouse than what is allowed to be taken under law. However, with a prenuptial agreement the amount that the spouse can take is already determined, and it cannot be overturned by nullifying the estate plan.

Using a Prenup to Allocate Assets in an Estate

One of the biggest points of contention between a new spouse and children from a previous marriage usually surrounds the inheritance of the primary home or vacation property. If you wish for your children to inherit the real estate, or any other valuable assets for that matter, you can explicitly state it within the prenuptial agreement.

The agreement can prevent in-fighting amongst members of your previous family and new family over pieces of your estate. In addition, it can prevent the selling and distribution of major aspects of the estate if you really want to keep the home, cars, or other valuables in the family.

Using a Prenup to Protect a Family Business

Another way that a prenup can help in estate planning is to protect a family business in the case of an unexpected death. Using a prenuptial agreement together with an estate plan, you can make sure that the business assets and decision making authority is transferred to the family members that you wish to run the business after you are gone. Many agreements specify that the business is transferred to the children or other family members, and in exchange the spouse in the prenuptial agreement gets a larger portion of the estate.

A prenup can also ensure that the decision making authority in a family business is transferred accordingly. If the business is split among all members of the family, including the new spouse, decisions regarding the running of business, profit sharing, and long and short term planning receive input from everyone. This can lead to a lot of family fighting if the decision making authority is not established in a prenup or estate plan beforehand.

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