Louis N. Teti, LL.M.

Our June newsletter included my article entitled the "Top 16" List of Common Misconceptions in Estate Planning. Here is a further analysis of Misconceptions #10 and #9.

Misconception #10:
"My husband and I have 'joint Wills', so we know that when the second of us dies, everything will pass to our children as we have provided in those Wills."
It is true that in many, many cases, spouses have "reciprocal" Wills. These Wills normally contain identical provisions which ultimately leave the entire estate to the children of that particular marriage. This is what we would term a relatively "simple" plan, even though we have noted in earlier articles that there is really no such thing as a "simple" estate plan. In today's society, people are frequently married for the second, third or even fourth time, so "reciprocal Wills" take on an entirely different meaning.

In order to insure that the intentions of each spouse are ultimately fulfilled, it is critical that the spouses understand the fact that when one of them dies, the surviving spouse may change his or her Will as many times and in as many ways as that spouse wishes. Therefore, there is no absolute assurance that when the second spouse dies, the estate(s) of those two spouses will ultimately pass down to the children of their marriage. Things happen. Spouses remarry, and frequently when they remarry, they do not insist on a Prenuptial Agreement. When that happens, the new spouse has rights under state law which are superior to the rights of the children of each spouse, and these rights take precedence over anything contained in the deceased spouse's Will. In other words, even if the surviving spouse remarries and executes a new Will which still gives the surviving spouse's entire estate to the children of his or her marriage to the deceased spouse, the new spouse has a right to elect to take against the Will, in which case that spouse would receive a proportionate share of the estate.

A well-developed estate plan takes into consideration all of these issues. Before estate planning documents are prepared and executed, an open and honest discussion must take place among the spouses and their estate planning attorney(s), to make sure that all potential issues have been considered, and, if necessary, that appropriate trust provisions are contained in each spouse's Will to insure and protect the inheritance rights of the children of their marriage.

Without a well-developed and thoroughly thought-out estate plan, the surviving spouse will "hold all of the cards" in terms of the ultimate distribution of the estate. This is frequently not what is intended by each of the spouses.

Misconception #9:
"A Prenuptial Agreement is not necessary in our case…we know that our marriage will last, and that our children from our previous marriages will be protected after we pass."
This is actually a corollary to Misconception #10. Prenuptial Agreements are critically important documents, especially when persons contemplate marriage for the second or third time. Without a Prenuptial Agreement, the marital assets that are held jointly will generally be distributed as outlined in the surviving spouse's estate planning documents. This depends, of course, upon how the assets are titled, and what is contained in each spouse's Will in terms of trust arrangements for that person's children and stepchildren. A Prenuptial Agreement causes each spouse to fully disclose his or her assets (and liabilities), the value of those assets and liabilities, the beneficiary designations on life insurance policies and retirement plans, and prior years' income tax returns, so that each spouse comes into the marriage with a complete and open knowledge of all assets and liabilities under the control of each spouse.

If the Prenuptial Agreement is carefully negotiated and there is full disclosure, each spouse may then execute an estate plan which takes into consideration the provisions of the Prenuptial Agreement, but also the realities of the new marriage. Each spouse will control those assets titled in his or her name or under that spouse's control. Depending upon the duration of the marriage, each spouse may make provisions in their respective Wills for the other spouse (and, for that matter, for the other spouse's children).

There are many, many stories involving cases where there was no Prenuptial Agreement and very large estates were distributed in a fashion which completely excluded the children of one spouse or the other. Again, estate planning is not simple. Clients should review their estate plans regularly, at least every two or three years with an attorney, to make sure that their current intentions are accurately reflected in their documents, and more importantly, to make sure that their assets are titled in a way that will carry out the estate plan. Although Prenuptial Agreements are sometimes seen as being a bit distasteful when starting out a marriage, the reality of the situation is that without such an agreement, the intentions of each spouse could very easily be frustrated and defeated. Children of the previous marriage are not protected unless appropriate care is given to the manner in which assets are titled, how those assets are ultimately distributed in each spouse's Will and/or Trust, and how the spouse's marital rights are handled in the Prenuptial Agreement.

MacElree Harvey
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West Chester, PA 19381–0660
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