You might think that family inheritances are simple matters. Perhaps the estate left by a parent is split evenly between the children at the time of the parent’s death. However, it’s not always that straightforward, and the increasing presence of blended and complex families in today’s society can make estate planning more complex.
Even if the parents appear to have appropriate wills and trusts, children are frequently disinherited. What causes this to occur? Absent a specific arrangement to the contrary, if the assets of a married couple transfer directly to the surviving spouse, that spouse is free to leave both their own assets as well as the assets of the deceased spouse to whomever they choose, or even unintentionally to others. Therefore, it is possible to disinherit children, whether unintentionally or not.
Find out more below about what a contract to plan is and how it might be used in your estate planning. Then learn about other options for protecting heirs in complex family situations, including trusts.
Understanding the Contract to Plan
This tool is literally a contract regarding estate planning. A couple enters into this agreement when they plan for their estate together and want to create some provision for what might happen if one of them were to pass away and the other remarried.
Specifically, the Contract to Plan lays out what percentage the children of the marriage are guaranteed to receive of any future estate. This percentage must be addressed even if the surviving spouse remarries and changes his or her will or estate plans to include a second spouse and/or other children or stepchildren.
Contract to Plan – Hypothetical Examples
Let’s look at an example to understand better how the contract to plan might be used. Bill and Carol had three kids and had been married for more than forty years. Their estate consisted of their house, IRAs, and a couple of investments. In their wills, they bequeathed everything to one another and, upon their second passing, to their children equally. Bill remarried a few years after Carol passed away. Bill sold his house and bought a new one under joint tenancy with his new wife. Soon after, Bill changed the beneficiary of his IRA to his new spouse. When Bill passed away a few years later, his new wife received all of Bill’s assets. Bill’s previous will did not apply to property held in joint tenancy or with designated beneficiaries. Several years later, the new wife died, and her assets, which included what Bill left to her, went to her family and not to Bill and Carol’s children.
Here is another example: John and Sarah each had children from prior marriages. They created an estate plan that left assets equally to the children of their blended family after the death of the second of them. For many years, they lived near all of their children. Several years later, John passed away. After John’s death, Sarah decided to move far away from the children to live in a part of the country where she used to work. As time went on, Sarah needed more assistance due to mild dementia. Although the children encouraged Sarah to return to live closer to them so they could help her, she chose to move to a continuing care community. Over the years, Sarah became close to her cleaning lady. As Sarah’s dementia became worse, the cleaning lady convinced Sarah to hire herself and her husband to be Sarah’s “caretakers.” Unbeknownst to the children, they convinced Sarah to visit a lawyer and change her estate plan to leave them a large portion of the estate. As a result, when Sarah died, most of the estate went to the cleaning lady and her husband and not to the children of Sarah and John, as was intended.
A separate agreement called the “Contract to Plan” can be used to deal with the issue of a surviving spouse modifying the estate plan or, at the very least, preventing the intentional or accidental disinheritance of the children of the first to pass away. This document can be helpful for couples who are not just in a second marriage but who also have children in common but are worried that the survivor will remarry and leave the majority of their estate to a new spouse or a third party. The Contract to Plan, unlike a revocable trust, may provide couples with greater flexibility and greater assurance that all of the children will be entitled to at least a portion of the survivor’s estate.
Some Benefits of a Contract to Plan
You might wonder why a couple would include a Contract to Plan in their estate planning when they could use something like a trust to safeguard assets for their children. Couples who have a net worth of $200,000 or more should usually create an estate plan using a revocable trust to facilitate the transfer of assets, but supplement the trust in order to protect their testamentary intent with a Contract to Plan.
A Contract to Plan allows for the protection of the children’s interests while also supporting flexibility for the surviving spouse. They are allowed to update their estate plans in the future to fit new family dynamics or needs, as long as the original percentage of inheritance is kept.
The benefit of this legal document is that it is not only enforceable but also urges the parties concerned to act in accordance with the contract. Spouses may be less inclined to try to evade their duties after signing a Contract to Plan. In this way, the Contract to Plan gives families the required flexibility in addition to the moral and legal obligation to prevent disinheriting the children of a deceased spouse.
My attorney never mentioned the Contract to Plan
Unfortunately, many attorneys in Massachusetts are not yet familiar with the Contract to Plan. That is probably because the Uniform Probate Code, the law that codified the technique, is a relatively new law in Massachusetts, and the Contract to Plan is a somewhat non-traditional planning technique. Nevertheless, the Contract to Plan can play a vital role in protecting the ultimate beneficiaries of your estate. And use of this technique can benefit not only those couples with children from prior marriages but also couples in their only marriage.
Couples should still use a revocable living trust to avoid probate and for other reasons (like asset protection and income and estate tax reduction), and the Contract to Plan merely complements such planning.
It is important to note that the Agreement may exclude certain assets. The Contract to Plan can be drafted to exclude specified property or to limit its scope to the value of the property to be controlled by the agreement, and it can even exclude charitable gifts if desired.
Also, contracts, unlike a Will, can provide that mere destruction of the contract does not void the contract but that it can be revoked only by a document signed by both spouses.
Multiple copies of the contract can be signed and provided to each side of the family (perhaps in a sealed envelope) so that the children will know that they have enforceable rights upon the death of the surviving spouse.
Get Help With Complex Estate Matters
As you can see, estate matters and contracts to plan can become complex, and you may need to consider a variety of factors when planning. Contact the Law Offices of Boyd & Boyd, P.C. to find out how we can help streamline these processes and protect your interests now and in the future.
