Current Events

How a Prenuptial Agreement can Impact Your Estate Plan

By Bobby Feisee, Ashburn Estate Planning Attorney

Ashburn Estate Plan LawyerWith divorce rates reaching over 50 percent in the United States, more people decide enter into a prenuptial agreement before they get married. These agreements are especially common with families composed of children from a previous marriage or relationship.

A prenuptial agreement is a legal document that is agreed upon and signed by both parties before marriage. A thorough agreement should fully disclose the financial assets of both you and your spouse. For example, savings accounts, stocks, interests in trusts and estates, and so forth. Prenuptial agreements also deal with any real estate that the two of you may own. Once all of the necessary information, is disclosed the agreement will specify how everything would be divided between the two of you in the event of a divorce or upon death. Another issue a prenuptial agreement can help clarify is if there will be any alimony or support and what happens in the event of a death.

Many people are under the mistaken belief that a prenuptial agreement can only come in handy when dealing with divorce. However, a prenuptial agreement can be used to clarify the rights and responsibilities of both spouses if a sudden loss of life occurs. Another advantage of having a prenuptial agreement is that, without such an agreement, your spouse may have the authority to nullify your existing estate plan by “electing” to take a statutorily defined percentage of your estate. For example, if you decide to leave your spouse 10 percent of your estate and have the rest of your estate go to your children, your spouse still has the authority – absent a prenuptial agreement – to challenge this allocation. The power to “elect” and receive a percentage of your estate is established by state law and can only be waived by an informed and signed waiver, which is routinely contained in a prenuptial agreement.

So, as mentioned above, if you want your home or other assets to go to your children (that includes children from a previous marriage), and not your new spouse, a well-crafted prenuptial agreement can make this happen. Let’s say, for arguments sake, you have children from a previous marriage and your new spouse also has children from another marriage. If you not have a prenuptial agreement, then your house and other assets could easily be passed to your new spouse’s children leaving your own children without the expected inheritance.

An option that is available to you is to set up a trust that will provide income to a second spouse but will then pass the bulk of your estate to your children from your first marriage.

To discuss this in more depth, contact an experienced Ashburn estate planning attorney with our firm.

About the Editors: InSight Law is an estate planning firm in Ashburn, Virginia (VA). The firm’s areas of practice include estate planning, business planning, trust and probate administration, assisting veterans and their family members with obtaining benefits, and medicaid planning. If you have questions, don’t hesitate to contact our office at 703-654-6019. We’re here to help.

How the American Taxpayer Relief Act (ATRA) Affects Estate Planning

By Bobby Feisee, Ashburn Estate Planning Attorney

The “fiscal cliff” could have been a fiscal nightmare for people with sizable estates. For example, if we actually went over the cliff, the estate and lifetime gift exemption would have decreased from $5.12 million to $1 million, according to Forbes.com. It would have also meant the possibility of reducing, or outright eliminating, legal wealth transfer strategies. Fortunately, Congress acted quickly after January 1, 2013 and passed the American Taxpayer Relief Act (ATRA). But you may be asking, “how does this affect my estate plan?” Good question. We discussed some of the implications for estate planning in our January 10 post, but we wanted to provide additional information for our readers.

Here are four important provisions of ATRA that affect estate planning:

1. The estate and gift tax rate will increase to 40 percent, a jump from 35 percent last year.
2. The exclusion amount for wealth transfer taxes is set at $5.25 million (while being indexed for inflation) and there is continued unification of all three wealth transfer taxes (estate, gift, and generation-skipping wealth transfer).
3. An increase in the annual gift tax exclusion – indexed for inflation – to $14,000. This is a $1,000 increase compared to last year.
4. An important provision allowing a deceased spouse’s unused exclusion or credit to be transferred to the living spouse was made permanent. As a result, a married couples has, as long as they file a Form 706 and plan appropriately, a combined exclusion amount of $10.5 million in 2013.

For more information about ATRA, check out this video from CNN Money:

Keep in mind, these are just highlights from the legislation. You should discuss with your estate planner the relevant provisions of ATRA that may affect your estate plan. In terms of general advice, you may also want to consider using a disclaimer trust or other strategies which would allow flexibility in deciding between the portability provision for couples and trusts. I mention this because the portability provision providing a spousal exclusion gives married couples a great tool for reducing or avoiding estate taxes. Though, this does not mean you should neglect utilizing a trust, which offer the flexibility to provide assets to future generations and generation-skipping, along with protection from creditors. Once again, take some time to sit down and meet with your estate planner to talk about ATRA’s ramifications on your estate plan.

About the Editors: InSight Law is an estate planning firm in Ashburn, Virginia (VA). The firm’s areas of practice include estate planning, business planning, trust and probate administration, assisting veterans and their family members with obtaining benefits, and medicaid planning. If you have questions, don’t hesitate to contact our office at 703-654-6019. We’re here to help.

Virginia Puts Into Action Domestic Asset Protection Trust Legislation

Beginning on July 1, 2012 Virginia will become the thirteenth state to permit a settlor to establish an irrevocable trust where the settlor is a beneficiary and they can still receive spendthrift protection against the claims of the settlor’s creditors.

On April 4, 2012, Governor McDonnell signed SB 11 expanding the number of types of trusts that are permissible in Virginia. This included adding new Virginia Code sections 55-545.03:2 and 55-545.03:3 permitting self-settled asset protection trusts. This legislation will be effective July 1, 2012 for trusts created on and after that date.

Virginia is the thirteenth state to enact domestic asset protection trust legislation and joins Missouri, Alaska, Delaware, Rhode Island, Nevada, Utah, South Dakota, Wyoming, Tennessee, New Hampshire, Hawaii and Oklahoma. There are several statutory requirements for the trust including:

  • The trust must be irrevocable;
  • There must be a Virginia trustee who maintains custody within Virginia of some or all of the trust property, maintains records within Virginia, prepares within Virginia fiduciary income tax returns for the trust, or otherwise materially participates within Virginia in the administration of the trust;
  • The settlor must be entitled only to discretionary distributions of income and principal; and
  • The transfer to the trust may not be a fraudulent transfer.

The Virginia legislation is a little more conservative than the legislation in other domestic asset protection trust states. First, there is a five-year period in which creditors at the time of the creation of the trust may bring a claim, a little longer period than some other states. Second, the settlor may not retain a power to disapprove distributions while such a veto power is common in other domestic asset protection trust states. Third, the person or entity who approves distributions must meet the requirements for a qualified trustee, which under the Virginia law means an independent trustee. Spouses, descendants, siblings, parents, employees, and entities in which the settlor controls thirty percent of the vote are specifically excluded. Fourth, only the right of the settlor to receive distributions of income and principal from the trust is protected from the claims of creditors. This may not protect all the assets in a Virginia self-settled spendthrift trust from the claims of the settlor’s creditors.

While the Virginia legislation may not be as attractive as the legislation enacted in other states, it can be a viable option for some in the right circumstances.

Virginia Puts Into Action Domestic Asset Protection Trust Legislation

Beginning on July 1, 2012 Virginia will become the thirteenth state to permit a settlor to establish an irrevocable trust where the settlor is a beneficiary and they can still receive spendthrift protection against the claims of the settlor’s creditors.

On April 4, 2012, Governor McDonnell signed SB 11 expanding the number of types of trusts that are permissible in Virginia. This included adding new Virginia Code sections 55-545.03:2 and 55-545.03:3 permitting self-settled asset protection trusts. This legislation will be effective July 1, 2012 for trusts created on and after that date.

Virginia is the thirteenth state to enact domestic asset protection trust legislation and joins Missouri, Alaska, Delaware, Rhode Island, Nevada, Utah, South Dakota, Wyoming, Tennessee, New Hampshire, Hawaii and Oklahoma. There are several statutory requirements for the trust including:

  • The trust must be irrevocable;
  • There must be a Virginia trustee who maintains custody within Virginia of some or all of the trust property, maintains records within Virginia, prepares within Virginia fiduciary income tax returns for the trust, or otherwise materially participates within Virginia in the administration of the trust;
  • The settlor must be entitled only to discretionary distributions of income and principal; and
  • The transfer to the trust may not be a fraudulent transfer.

The Virginia legislation is a little more conservative than the legislation in other domestic asset protection trust states. First, there is a five-year period in which creditors at the time of the creation of the trust may bring a claim, a little longer period than some other states. Second, the settlor may not retain a power to disapprove distributions while such a veto power is common in other domestic asset protection trust states. Third, the person or entity who approves distributions must meet the requirements for a qualified trustee, which under the Virginia law means an independent trustee. Spouses, descendants, siblings, parents, employees, and entities in which the settlor controls thirty percent of the vote are specifically excluded. Fourth, only the right of the settlor to receive distributions of income and principal from the trust is protected from the claims of creditors. This may not protect all the assets in a Virginia self-settled spendthrift trust from the claims of the settlor’s creditors.

While the Virginia legislation may not be as attractive as the legislation enacted in other states, it can be a viable option for some in the right circumstances.