While ultrawealthy seniors have long had teams of advisors to protect them, the folks I call “quietly wealthy” are often vulnerable. They’re the strong-willed, successful business owners who are worth, say, $10 to $15 million. They’ve never doubted their decision-making ability and are convinced the new love of their life wants to marry them for all the right reasons. Because these owners don’t usually have a team of sophisticated advisors to counsel them to sign a prenup, they’re riding the nuptial bus on their own. Many believe they’re well-protected if they have a revocable trust in place.
They’re not.
When working with our existing clients who plan to remarry, there’s usually plenty of time to plan. But seniors in love often come to us for the first time shortly before their wedding, typically prompted by a friend asking, “You signed a prenup, didn’t you?” Of course, they haven’t, and it seems too late for a prenup discussion when the wedding date is set and guests have purchased plane tickets and made hotel reservations.
Commitment Ceremony vs. Wedding
For people of faith, the only way to slow down the nuptial bus in this scenario is to hold a “religious commitment ceremony” performed by a priest, rabbi or pastor. This enables the couple to share vows under God and commit to each other without a civil marriage license. For couples who don’t want a ceremony performed by a faith leader, a similar type of commitment ceremony can be held in front of family and friends. If the client is amicable, this strategy gives the couple time to complete a proper prenup before the civil ceremony. Further, the happily committed couple doesn’t have to cancel the original ceremony, and there’s no need for family or guests to know the arrangement.
Blended Family Stressors
The complexities of managing stepchildren and multi-generational family dynamics can place strain on later-in-life marriages. When adult children are involved, a prenup is especially important to document that both spouses are waiving rights against each other’s estates. Both parties should also have separate counsel when preparing their estate plans.
They’re not only waiving homestead rights and elective share rights, but also, they’re waiving statutory rights. If your client’s children are their primary beneficiaries, your client may not want their new spouse controlling their children’s inheritance. A prenup lets your client’s spouse waive the right of priority, so your client can name one of the children or a professional trustee as their pre-need guardian, executor or personal representative. The prenup also gives your client the ability to plan for what happens on both incapacity and death. This ensures that the right people are in the right positions without court involvement.
The Four Ds of Prenups
Prenups are typically divided into four categories: death, divorce, daily living and disability. You lay out what happens while everyone is still on good terms, so there are no surprises later.
That’s why both sides should have separate counsel and full financial disclosure when preparing, negotiating and signing a prenup, primarily to protect the wealthier spouse. If the less wealthy spouse is waiving their constitutional, statutory and priority rights, they won’t be able to claim down the road that they were under pressure to sign. The prenup should also be negotiated and signed at least 30 days before the nuptials, making it difficult for one spouse to later claim undue influence.
In many other states, including Florida, homestead and elective share rights attach the moment your client says, “I do.” For a spouse to knowingly and competently waive those rights, they must fully understand what they’re giving up beforehand. Separate counsel is key!
Real-World Example
One of the biggest fears of second and third spouses, particularly wives, is that their husband’s children will force them out of the house if dad dies first. A prenup can provide peace of mind. We recently negotiated a prenup in which the opposing attorney sought to have the surviving spouse receive a life estate in the home. We wanted a “license to occupy” instead, valid for the rest of her life as long as she didn’t remarry or cohabitate with a non-related male.
A life estate has calculable monetary value. If a wife in her mid-60s has a life estate, it may be worth 70% of the home’s value, meaning the husband’s children would receive a significant reduction on a sale. We weren’t looking for the wife to have transferable equity in the home. Our client was willing to provide a place to live and income to maintain it, not an asset she would benefit from on a sale. When you’re dealing with home values in the seven-figure range, the maintenance, taxes, HOA fees and other expenses need to be specified to help deter conflict down the road.
Marital Trusts
Think of a marital trust as an endowment: It provides an income stream to the surviving spouse, but not unfettered access to the principal. It’s revocable while both spouses are alive and becomes irrevocable when one dies. The surviving spouse receives annual income from the trust for life, and access to principal can be restricted or limited to ascertainable standards, or it can be left to a third-party trustee’s discretion under a letter of wishes.
If the surviving spouse remarries, trust assets won’t pass to the new spouse. On remarriage, the surviving spouse is also removed as trustee, replaced by the children or an independent third party, so a new partner can’t influence withdrawals.
Life Insurance and Retirement Accounts
Life insurance and qualified retirement accounts are often a couple’s two largest assets aside from their home, and they’re frequently mishandled. For instance, the thinking is often as follows: “If I die and leave my IRA or 401(k) to my wife outright, the Internal Revenue Service allows her to roll it into her own account. Once that happens, it’s no longer my account. She picks the next beneficiaries. My contingent beneficiaries no longer matter.”
The SECURE Act, however, has made it possible for the IRA or 401(k) to pass through the marital trust as a “see-through” trust, giving the spouse access to the income without the ability to change the ultimate death beneficiaries, thus providing asset protection for the children even if someone new enters her life.
Life insurance works the same way. If a wife is the primary beneficiary on a multimillion-dollar policy and later remarries, her new husband could end up with a claim to those proceeds. To prevent this scenario, the proceeds should be placed in a marital trust for her benefit, providing asset protection for the children even if someone new enters her life.
This is something attorneys and wealth advisors frequently miss, especially those not practicing in Florida, Arizona or Texas, where many retirees choose to reside later in life. Policies held by agents who are no longer in the client’s life often go unmonitored. No one is thinking about the surviving spouse finding new companionship or being slowly convinced to withdraw trust assets until nothing remains for the children. These things happen all too often.
