How a Prenup Can Affect an Estate Plan
Virginia Beach, VA (Law Firm Newswire) November 13, 2015 – An estate plan often needs to take into account factors such as a prenuptial agreement.
“A well-drafted estate plan can help ensure that one’s assets are protected, and that one’s beneficiaries are provided for after one’s death,” said Andrew H. Hook, a Virginia estate planning attorney with Hook Law Center, with offices in Virginia Beach and northern Suffolk. “Proper planning includes taking into account family circumstances, including any prenuptial agreement that may exist.”
An estate plan can be created around a prenuptial agreement. Consider a case discussed recently in the Wall Street Journal, of a man who inherited his father’s business while in his 30s, and then developed it into a company worth $6 million. After becoming engaged, he wished to ensure that he would retain his business in case he and his wife divorced. Therefore, prior to getting married, he requested that his wife sign a prenuptial agreement that enabled him to keep all of his assets, including his business and the relevant real estate, separate from his spouse.
However, since the man was currently in his 40s, and had two children, he was more concerned about ensuring that his family was well taken care of in case he died. Due to the fact that most of his wealth was contained in his business, the prenup placed an extreme limit on the assets to which his wife would be entitled upon his demise.
When he sought advice from a financial planner, he was informed that he could protect his assets in the event of a divorce, but still provide for his family following his death. The financial planner recommended the use of two family limited partnerships, which could give the wife income earned from the business, but would prevent her from having control of its operations. While one partnership would hold the business, which was a C-Corp, as well as liquid investments worth $2 million, the other partnership would consist of business real estate. Both general partnerships would be held by the owner via a new limited liability company in order to protect him from litigation against the business.
The family limited partnerships would allow the client to possess 99 percent limited partner ownership. In the event of his death, part of that limited partner interest would be left to his wife. A testamentary trust would receive the shares as a gift, and his wife would be both trustee and beneficiary of the trust, which would provide her with access to income from the business, without gaining control of the business.
The business owner wished to safeguard the business for his children in the event that they became interested in managing it in the future. But since they were still minors, the owner appointed his brother as successor manager of the LLC that contained the general partnerships. Upon the owner’s death, his brother would become manager and trustee. Once the owner’s children reached age 30, they would be co-trustees along with their uncle. At age 35, they would be sole trustees.