But if an advisor wants a thorough picture of a prospective client's estate plan, the line of inquiry has to be broader. All matrimonial agreements belong on a target list. An investigation often has to expand into unexpected legal corners. In certain situations, a lease might prove to be the most important legal document in a family's estate planning repertoire. Confining analysis to obvious estate planning documents such as wills could miss some important issues - as well as some lucrative planning opportunities.
RELATIONSHIP CONTRACTS
Prenuptial agreements are as common as cappuccino, but the common use of these documents doesn't assure good planning. Agreeing in advance of "I do" to the economic consequences can prevent legal battles and costly settlements. Once married, each spouse has fiduciary obligations to the other. Too often, though, these common agreements fall prey to common errors.
For example, a client's signing the agreement on the day of the wedding could derail protections because it creates a presumption the aggrieved spouse was pressured into signing, rather than being afforded ample time to consider the terms. Similarly, failing to disclose financial data fully and accurately could subject an agreement to a challenge. For example, listing something vague like "art of unknown value" is less likely to be upheld in court than a prospective spouse who details rights to a contemporary collection of American lithographs by listing each work, artist, description and value.
The myriad variations these agreements come in address a wide array of estate planning matters and, too often, planners do not address the nuances. For example, if a wife's brokerage account is deemed a separate asset, but the income is deemed joint property, how should the accounts be set up? The principal assets will be protected if the accounts are set up from inception so that income (as defined by the client's agreement, not how common usage, tax law or any other definition would have it) is credited to a joint money market account and the core investments are left intact.
If, instead, all income is left to accumulate in one account, at best the client has a costly and difficult accounting battle to unravel the amounts. At worst, commingling might mark the entire account as a marital asset, especially if other infractions occurred over the years. Such agreements are not only for soon-to-be-marrieds. If living together, a couple should have an agreement governing their relationship. While the concept of palimony may have begun with the famous 1976 case Marvin vs. Marvin, the law has continued to evolve.
For example, Arizona, California, and Nevada courts have held that decades of cooking, cleaning and managing a household may be adequate proof of a property-sharing agreement between cohabitants. Obligations may exist even if the parties had separate homes but were in a long-term relationship. Failing to address these relationships could expose a client's estate to a costly settlement.
When drafting marital and nonmarital contracts, remember that an agreement may not be enforceable in all states, cautions Wendy S. Goffe of Seattle law firm Graham & Dunn. "Similarly, a same-sex couple legally married in one state may not be able to convince a court to enforce their prenuptial agreement if they later move to a state that does not recognize the marriage. So a possible geographical move should always be contemplated in drafting," she adds.
DEEDS
Many families have bequeathed homes or vacation properties to their heirs, hoping that they'll stay in the family for generations to come. Some use dynasty trusts, while others included restrictions in the deeds used to transfer the property interests, or granted conservation or other easements that restrict the use or transfer of the properties. Before your client can plan how to distribute or dispose of an interest in family property, you must evaluate any restrictions - both governmental and personal.
If a client moves, it can have a big impact on deeds. "Clients may create community property in one state and then move to a non-community property state. This creates problems," Goffe says. More than a dozen states have adopted the Uniform Disposition of Community Property Rights at Death Act, she says. "If a couple is moving to one of those states, they may want to take advantage of the ability to preserve community property."
