Make sure prenuptial agreements are reviewed by an estate planner

If you’re thinking of signing a prenuptial agreement – or if you know someone who is – it’s a good idea to have an estate planner review the document.

Most people think of prenuptial agreements as spelling out what will happen if a couple get divorced. But in fact, most prenuptial agreements also state what will happen if one spouse dies while the couple is still married. In actual practice, prenuptial agreements come into play as much as a result of death as they do as a result of divorce.

For this reason, you should think of a prenuptial agreement as a type of estate planning document and treat it with the same care as you would a will.

For instance, a prenuptial agreement might say that if a person dies, certain property will go to the person’s spouse and certain property will go the person’s children from a prior marriage, or other family members. If so, you’ll want to make sure the document clearly states whether certain other rules apply – such as elective share laws (which can allow a spouse to collect more of an estate than is provided in a will), intestacy laws, or community property laws.

You’ll also want to consider whether you can save on estate taxes for both the spouse and the other family members by using trusts. And you’ll want to carefully consider who should act as trustee.

What if the person signing the prenuptial agreement becomes incapacitated? Should the spouse serve as his or her guardian, or should someone else? Some prenuptial agreements say that the spouse can serve as a guardian, but only if the marriage has lasted a certain length of time.

If you have a pension or IRA, you’ll want to very carefully consider who gets that asset, because pensions and IRAs have important estate planning implications, and the tax benefits can be greatly affected by which person receives it and the ages of the people involved.

You’ll also want to carefully consider the tax issues when deciding what will happen in the event of a divorce, because these could affect your estate plans as well.

For instance, payments made as alimony are deductible to the person making the payment and taxable to the recipient, but that’s not true if a payment is made as a property settlement.

In a property settlement, not all property is equal. It’s often possible to avoid a large capital gains tax by transferring certain property rather than other property.

And again, any transfer of a pension or IRA can be very tricky.

In general, if you’ve gotten married or had any other material change in your life since the last time you reviewed your estate plans, we’d be happy to discuss how to bring your plans into line with your new situation.

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