A prenup comes into effect when your relationship ends. And all relationships end – either through separation, or one person passing away. This means that you can set out in your prenuptial agreement what happens when you pass away. As you likely still love and care for your partner at that point in time, you may well want a different result than if you were separating.
It is not required that your prenup contain anything to do with estate planning – most people simply leave this to their will. However, there may be circumstances where dealing with estate planning in your prenuptial agreement is beneficial, as set out below.
Note that a prenup does NOT replace a will or other estate planning documents. It is not an estate plan, nor is it flexible enough to be. As well, your prenup only deals with legal rights between you and your spouse, so you cannot effectively deal with estate planning for others in your prenup, as they are not part of the agreement.
What one can accomplish with a prenuptial agreement is either to set out certain minimum standards for your will, waive inheritance rights that you and your partner may have, or to provide specifics bequests (gifts) for your will. Let’s look at each of these in turn.
Prenups for minimum standards in your will
The simplest example of this is a requirement in a prenuptial agreement that each spouse leave all, or a certain percentage or amount, of their assets to the other in their will. The idea is for you and your spouse to bind each other to provide for the other. You can provide additional protection this way, rather than a spouse only getting the minimum inheritance they are required to receive by law. Note that doing this does not limit you from being more generous if you would like to be.
Prenups to waive inheritance rights
Your spouse is entitled by law to receive a certain minimum amount from your estate when you pass away. So, if your spouse is not happy with the amount you left them in your will, your spouse can elect to take their entitlement under the law, even if this is more than your will provides. The amount your spouse can elect varies by state, but is typically one third to one half of your estate. The idea behind this is that you should not be able to disinherit your spouse.
In addition to this, your spouse may also have other rights, including:
Homestead allowance – permission to stay in the marital residence for a certain period of time;
Personal property allowance – entitlement to a certain amount of your personal property, including household goods and furnishings; and
Family allowance – a bit like alimony payments for support of your spouse until your estate is settled.
Your spouse may also have other rights – such as to act as the executor of your estate.
However, your spouse can agree to waive some or all of their rights to your estate in a prenup. This sort of thing is commonly done in second and subsequent marriages to protect children, where you may wish to leave your assets to your children from a previous marriage rather than your second wife or husband.
Prenups to provide a specific bequest
The most common example of this is the marital residence. A prenup can state that when one party passes away, the other is allowed to keep the marital residence, or at least to live in it rent free for the rest of their lives.