Contracts to Make a Will

Posted on October 5, 2011 by Bryan Howard

In a recent case, Estate of Ina Ruth Brown, the Tennessee Court of Appeals upheld the validity of a contract to execute Wills. These contracts are most often used in second marriages when at least one of the spouses has children from a prior marriage.

The contract typically works as follows: Each spouse agrees to bequeath certain property to the survivor with the understanding that the survivor will bequeath the property to the children of the first spouse to die following the survivor’s death.

Following the execution of the contract, the husband and wife each execute Wills which are consistent with the contract. After the first spouse dies, the children of the surviving spouse sometimes persuade the surviving spouse to change his/her Will in a way that totally disinherits the stepchildren. That is exactly what happened in the Brown case.

After Mrs. Brown died, her son probated her Will, which left everything to him.  Mr. Brown’s children filed a Will contest.  The children should have filed a claim for breach of contract against the estate of Mrs. Brown rather than a Will contest.  Nevertheless, the Court of Appeals granted to Mr. Brown’s children the property they were entitled to receive based upon the contract.  Even though Mr. Brown’s children were ultimately successful, it took them 8 years and significant legal fees to protect their rights.

Estate planning for spouses in second marriages is challenging. Each spouse wants to benefit their spouse and benefit their children from the prior marriage. The best solution is to transfer separate assets to the spouse and children upon the first spouse’s death. When there are not enough assets to take care of the spouse and the children, various approaches are used to enable the property to benefit the surviving spouse during his/her lifetime with the property to pass to the children upon the surviving spouse’s death. All of these techniques inevitably create tension between the stepparent and the stepchildren.

I have prepared contracts to make a Will for several couples, though only after investigating other solutions and with a warning to my clients that such contracts are a challenge to enforce by the children of the first spouse to die.

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Widow Receives Partial Elective Share Despite Prenuptial Agreement

Posted on March 25, 2010 by Bryan Howard

I am surprised by the number of cases involving prenuptial agreements that fail to accomplish the intended purpose. When the agreements do not work, it is generally because the parties fail to follow the proper procedures. The parties should be represented by separate counsel and must make a full disclosure of their assets to each other. Further, the agreement should be signed prior to the eve of the wedding.

In the Estate of Joseph Brightman Cooper, the proper procedures were not followed. First, there was no listing of the assets of each party.  Apparently, Mr. Cooper told his bride that he owned a house with 18 to 20 acres. Mrs. Cooper testified that Mr. Cooper neglected to tell her about the cattle and farm equipment that were located on the farm. Mr. Cooper may have assumed that she knew about the cattle and equipment since she had lived in the same community, had visited his home on several occasions, and had known him for 20 years prior to the marriage. It also appears that Mrs. Cooper was not represented by an attorney.

After Mr. Cooper died, Mrs. Cooper did not like the provisions made for her in Mr. Cooper’s Will and asked the Court to award her 40% of the estate. The Court ruled that she could not receive part of the house and farm because she had known about this property when she signed the prenuptial agreement. However, since Mr. Cooper had failed to tell her about the cows and equipment located on the farm, she could receive 40% of the value of these assets as well as 40% of all other assets owned by the estate.

The Coopers’ prenuptial agreement only covered property owned by the spouses at the time of the marriage. This is very unusual. Most prenuptial agreements eliminate elective share rights with respect to all property belonging to the estate of the first spouse to die.

Mrs. Cooper received approximately $185,000 from Mr. Cooper’s estate. In addition to paying $185,000 to Mrs. Cooper, the estate paid significant legal fees. The prenuptial agreement was partially successful because it prevented Mrs. Cooper from receiving any portion of the house and 18 acres.  I did not know Mr. Cooper, but presume that his intent in signing the prenuptial agreement was to prevent his wife from claiming an elective share of his estate. His intent was thwarted due to his failure to follow proper procedures.

There are three lessons to be learned from this case. First, if you want to make sure that your children receive what you want from your estate, make sure the prenuptial agreement is properly drafted and follows the proper procedures. Second, if you want to be able to receive a share of your spouse’s estate upon his or her death, do not sign a prenuptial agreement, or, alternatively, negotiate for the amount that you want to receive in the event of death and include this in the prenuptial agreement. Third, if you are a surviving spouse and signed a prenuptial agreement, all may not be lost. The Cooper case is one of several Tennessee cases that have allowed a surviving spouse to claim an elective share of the decedent’s estate despite having signed a prenuptial agreement.
 

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Marital Unitrust Reduces Friction with Stepchildren

Posted on September 21, 2009 by Bryan Howard

I discourage the use of a marital trust for a surviving spouse when the decedent’s children from a prior marriage will be the remainder beneficiaries. Such trusts have an inherent conflict of interest and should be avoided when possible.

Most marital trusts base the payments to the surviving spouse on the trust’s income. The surviving spouse wants the Trustee to purchase investments that produce a lot of income. Conversely, the stepchildren prefer the Trustee to invest in assets that will appreciate in value over time.

When a marital trust is the only practical solution, I recommend a marital unitrust, which works as follows: The surviving spouse receives the greater of the income earned by the trust or five percent (5%) of the value of the trust determined as of the beginning of each calendar year. In order to reduce volatility in the amount of the annual payments to the spouse, payments should be based on a 3 year average of the value of the trust.

The Trustee invests in a mixed portfolio of equities and fixed income investments. Principal assets will need to be liquidated each year to make the payments to the spouse because income will be significantly less than 5%.

The spouse wants growth because it will increase distributions in the future without reducing current distributions. The Trustee’s job will be much easier to accomplish because the spouse and the stepchildren will have the same goals.  
 

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