Florida Bar Journal

Post-Death Planning in Marital Agreements: A Primer and a Call for Collaboration

In most cases, the primary purpose of a marital agreement, whether it be in the form of a premarital agreement or a postmarital agreement (but excluding a marital settlement agreement), is to address the myriad issues that will potentially arise if the marriage ends in divorce. Throughout the negotiation process, clients and their counselors tend to devote most of their time and attention to that possibility — that the marriage may end in divorce.

Typically, family law experts work closely with their clients to draft elaborate provisions in their marital agreements covering every manner of contingency that might arise in a divorce context. Clients are encouraged to be thoughtful and fair in crafting provisions that protect both parties. After all, the client’s future spouse (or current spouse in the case of a postmarital agreement) is typically being asked to waive significant rights the fiancé(e) or spouse would otherwise have in a divorce, and typically the fiancé(e) or spouse is deserving of and should receive some form of protection and security in return.

Furthermore, experience tells counselors and drafters of marital agreements that fair marital agreements are less likely to be challenged, and if challenged, fair marital agreements are more likely to be upheld by the courts.^[1]
The possibility of divorce clearly and typically merits the lion’s share of the considerable attention paid by clients and their counselors in the preparation of all Florida marital agreements. However, it seems that in some cases the attention and concentration on divorce issues may overshadow the equally important issues that arise when a marriage ends with the death of a party. Family law experts — who often have considerable experience navigating divorce proceedings but less experience navigating estate planning, trusts, estates, and tax issues — might not place the same emphasis on the post-death provisions of a marital agreement. In fact, many marital agreements (perhaps too many) include sweeping post-death waivers, by which the parties waive all of the considerable legal rights of a surviving spouse for nothing in return (other than, typically, a promise that the marital agreement is really just to protect one party in the event of divorce and, of course, that party will generously take care of the other party if the marriage ends by death instead of divorce).

Surely, there are many cases calling for a marital agreement with full waivers of all rights on death without any consideration, such as a third, fourth, or later marriage between two already wealthy parties, where neither party needs the assets of the other after the first death and both parties have separate families with expectations of inheriting their parent’s estate. This type of situation may involve post-death provisions for one or both parties, but the marital agreement would likely be fair even if the post-death provisions only include full waivers of post-death rights. Sometimes a full-waiver-on-death marital agreement is the proper approach.

However, those who review marital agreements as part of their practice (in negotiating them, in dissolution proceedings, or post-death in probate or trust administrations or litigations) have probably seen too many marital agreements drafted with multiple articles and pages devoted to divorce and a single “full waiver” article governing in the event of death, in situations where both spouses were not independently wealthy and where the surviving spouse needed protection. Drafting a marital agreement (or representing a client in reviewing someone else’s drafted marital agreement) with very detailed divorce terms and nothing more than full waivers on death is not only unfair to those parties, it is not a good practice — and it may even be malpractice.

Fortunately, a trend seems to be developing where some family law attorneys drafting complex marital agreements are bringing in experienced trusts and estates co-counsel (and vice versa) in drafting marital agreements. This is a trend we have witnessed and participated in as part of our practice, and it is a trend we encourage.

Indeed, while this article poses as a primer on drafting post-death provisions in marital agreements, at its core, this article is a call for more collaboration between family law experts and estate planning experts to address the post-death provisions of marital agreements in a more thoughtful manner. The discussion and examples below are meant to serve as a starting point to encourage family lawyers and estate planners to draft comprehensive post-death provisions designed to protect both parties in their marital agreements.

A Surviving Spouse’s Post-Death Rights Under Florida Law

As a threshold matter, it is important to acknowledge the value of post-death rights that are often waived in marital agreements. Florida law implicitly recognizes that the death of a spouse may be the most traumatic and destabilizing event in a person’s life. In addition to emotional trauma, a surviving spouse may be left facing immediate financial uncertainty. For example, if a deceased spouse was the primary breadwinner, owned most of the couple’s assets, or diverted those assets to someone other than the surviving spouse upon death, the surviving spouse could suddenly be left without any of the assets he or she relied upon to survive during the marriage. In response to this troubling scenario, Florida law expressly provides a surviving spouse with robust legal rights in the assets of a deceased spouse, even if the deceased spouse did not provide for the surviving spouse in the deceased spouse’s estate plan (will or revocable trust, etc.).

• Elective Share — Florida law directly prevents a deceased spouse from completely disinheriting a surviving spouse in most cases. Under F.S. §732.201, a surviving spouse may elect to take 30% of the deceased spouse’s elective estate — broadly defined to capture virtually all of the property owned by the deceased spouse.^[2] Florida’s elective share formerly only applied to the probate estate of the decedent and was easily circumvented. However, the Florida Legislature adopted sweeping changes in 1999, which currently provide for an elective share against the broader elective estate, which encompasses almost all forms of ownership by the deceased spouse.^[3] The elective estate includes probate assets and non-probate assets (including revocable trusts, jointly-titled property, beneficiary-designated property, and more).^[4] Since this change, a surviving spouse who has been disinherited may claim a substantial portion of the deceased spouse’s assets.

• Homestead — Florida homestead law provides very strong protection for a surviving spouse who does not have an ownership interest in his or her home. Under the Florida Constitution and the Florida Statutes, a spouse may not devise his or her homestead away from the surviving spouse.^[5] While the Florida Constitution provides the restriction on devise if there is a surviving spouse,^[6] the Florida Statutes define what happens if the homestead cannot be devised or is devised improperly.^[7] The primary rule is that the homestead property passes the same as other intestate property,^[8] which means if the deceased spouse has no descendants, then the homestead vests 100% outright in fee simple in the surviving spouse.^[9] However, if the deceased spouse has living descendants, then the next rule is that the surviving spouse is entitled to a life estate in the homestead, with a vested remainder in the homestead passing to the descendants of the deceased spouse, per stirpes.^[10] In summary, the surviving spouse is entitled to remain in the homestead for life. If the deceased spouse is survived by one or more descendants, and if the surviving spouse does not prefer to obtain a life estate in the homestead, then the surviving spouse may elect (within six months after the death of the first spouse) to take a 50% tenants-in-common (TIC) interest in the homestead, with the other 50% TIC interest vesting in the descendants of the deceased spouse, per stirpes.^[11] Note that only the surviving spouse has this option — there is no corresponding option for the descendants of the deceased spouse. In either event, the surviving spouse is guaranteed some protection with respect to the homestead.

• Family Allowance and Exempt Property — Florida law includes provisions designed to ensure that a surviving spouse has access to assets almost immediately after the deceased spouse’s death. For example, under F.S. §732.403, a surviving spouse (and any descendants the deceased spouse was supporting) is entitled to a family allowance of up to $18,000 from the estate of the deceased spouse during the probate process.^[12] A surviving spouse is also entitled to exempt property, including up to two family vehicles (regardless of value) and tangible personal property used in the couple’s home valued at up to $20,000.^[13]

As illustrated above, the post-death rights of a surviving spouse under Florida law are often extremely valuable and should not be relinquished lightly. Nevertheless, many marital agreements include broad waivers relinquishing every post-death right imaginable (indeed it is common to see waivers of post-death rights that Florida law does not even provide — like dower and curtesy rights, which were actually abolished in Florida by statute in 1975).^[14] A party who may need one or more of these rights should not waive them without devoting considerable thought to the decision — and should often seek some type of protection in return.

It is recognized and well settled that one of the primary reasons parties enter into marital agreements is to avoid the complexity (and conflict) that may arise when the marriage ends — whether by death or divorce. The parties often wish to implement terms designed to minimize uncertainty and make the termination of the marriage as simple as possible. The authors acknowledge that allowing a surviving spouse to assert his or her post-death rights in a post-death proceeding (e.g., a probate or trust administration) may introduce significant uncertainty and complexity if the marriage ends in death. However, well drafted marital agreements can address the concerns of both parties by including comprehensive post-death provisions designed to both protect the surviving spouse and minimize the risk of conflict between the surviving spouse and the deceased spouse’s other heirs. In other words, the uncertainty of an elective share proceeding (or even its perceived unfairness), or the confusion of a post-death homestead resolution (not to mention the pain that a life estate and remainder relationship can create), can all be avoided by providing post-death waivers in marital agreements; provided, however, that there are certain guaranteed provisions for the surviving spouse (whether outright or in trusts created upon the first death) added to the marital agreement as consideration for the post-death waivers. As counselors, we should encourage our clients to think carefully about these issues and agree to fair post-death provisions.

A Simple Approach: Mandatory Outright Distributions

Many clients want a simple solution to address issues that may arise upon the death of a party to the marital agreement. If the client has significantly more assets than the fiancé(e) or spouse, and the parties do not expect the disparity to change during the marriage, a mandatory outright distribution upon death may be the most straightforward solution. As illustrated below, there are multiple options available for determining an amount that will be acceptable to the client and provide adequate comfort and protection to the fiancé(e) or spouse.

• Fixed Dollar Amount — One option is to simply specify a fixed dollar amount to be distributed to the surviving spouse if the client predeceases the fiancé(e) or spouse. For example, the agreement could provide as follows:^[15]

Distribution for FIANCÉ(E). Notwithstanding anything contained herein to the contrary, in the event FIANCÉ(E) survives CLIENT, the parties’ marriage has not been terminated by a Final Judgment of Dissolution, and no Action for Dissolution is pending on the date of CLIENT’s death, then CLIENT agrees to devise or otherwise transfer outright to FIANCÉ(E) the amount of __________________ ($_____________) (the “Marital Distribution Amount”), which shall be satisfied by a transfer of cash or cash equivalents (marketable securities), effective as of the date of death of CLIENT.

A fixed-sum provision is the most straightforward approach and may be the best solution for clients who prioritize simplicity and ease of administration.

• Percentage of Estate — While a specific amount may be the most straightforward approach, it isn’t always the best option. Some clients may hesitate to commit to a specific amount at the outset, particularly when their financial circumstances may change over time. In such cases, the client could instead offer the other party a percentage of the client’s estate:

Distribution for FIANCÉ(E). Notwithstanding anything contained herein to the contrary, in the event FIANCÉ(E) survives CLIENT, the parties’ marriage has not been terminated by a Final Judgment of Dissolution, and no Action for Dissolution is pending on the date of CLIENT’s death, then CLIENT agrees to devise or otherwise transfer outright to FIANCÉ(E) an amount equal to __________________% of CLIENT’s Net Estate Upon Death. For purposes of this calculation and limitation, CLIENT’s “Net Estate Upon Death” shall be equal to the fair market value of CLIENT’s gross estate as finally determined for federal estate tax purposes, reduced by all deductions as reported on a Federal Estate Tax Return Form 706 (“Form 706”) filed on behalf of CLIENT’s estate and as finally determined for federal estate tax purposes, but for purposes of this provision, excluding any such deductions qualifying under Section 2056 of the Code. If a Form 706 is not required to be filed for CLIENT’s estate, CLIENT’s Personal Representative shall prepare a Form 706 using the rules in effect for decedents dying as of the effective date of this Premarital Agreement, and this Section shall be interpreted as if a Form 706 were required to be filed.

A percentage-based distribution offers more flexibility and might help if the client is uncomfortable agreeing to a fixed amount from the outset.

• Adjustment Based on Length of Marriage — Regardless of whether the distribution is a specific amount or a percentage of the client’s estate, the client may be reluctant to agree to a substantial devise to the future (or current) spouse if the couple is married for only a relatively short time. At the same time, however, the client may be willing to agree to a substantial devise to the surviving spouse if the parties are married for a longer period. In that scenario, linking the devise to the length of the marriage could benefit both parties:

Distribution for FIANCÉ(E). Notwithstanding anything contained herein to the contrary, CLIENT hereby agrees that in the event FIANCÉ(E) survives CLIENT, the parties’ marriage has not been terminated by a Final Judgment, and no Action for Dissolution is pending on the date of CLIENT’s death, then CLIENT shall be required to devise or otherwise transfer outright to FIANCÉ(E) the amount specified in the table below that corresponds to the length of the marriage of the parties at such time (the “Marital Distribution Amount”), which shall be satisfied by a transfer of cash or cash equivalents, within _____ months after the date of death of CLIENT:

Length of Marriage = Total Amount

1. At least one (1) year but less than five (5) years = $_________

2. At least five (5) years but less than ten (10) years = $_________

3. Ten (10) years or more = $_________

For the avoidance of doubt, the amounts set forth above are mutually exclusive and shall not be cumulative under any circumstances.

Similarly, the percentage of the estate a client will devise to the surviving spouse could be drafted so as to increase based on the length of the marriage.

Reassured by the limits imposed if the marriage lasts only a few years, the client may be more comfortable agreeing to a generous devise that increases if the parties are married for a longer period (e.g., for more years). Thus, both parties may benefit from time-based limits: The client is protected by the limit if the marriage lasts only a few years, and the fiancé(e) or spouse is protected by a larger devise if the couple is married for a longer period.

• Net Worth Limitations and Safeguards — A client’s willingness to agree to devise a specific dollar amount upon death may also depend on the risk of future changes in net worth. For example, if the client’s net worth decreases dramatically during the marriage, the relative value of the surviving spouse’s distribution may increase beyond what the parties intended. This risk may be mitigated to some extent by making the mandatory devise a percentage of the client’s net estate instead of a fixed dollar amount, as described above. However, the client may prefer a targeted safeguard that caps the amount of the required distribution at a specific percentage of the client’s net worth:

Net Worth Limitation. Notwithstanding the foregoing, if the Marital Distribution Amount exceeds thirty-three percent (33%) of CLIENT’s Net Estate Upon Death, then the Marital Distribution Amount shall be reduced to an amount that equals thirty-three percent (33%) of CLIENT’s Net Estate Upon Death. For purposes of this calculation and limitation, CLIENT’s “Net Estate Upon Death” shall be equal to the fair market value of CLIENT’s gross estate as finally determined for federal estate tax purposes, reduced by all deductions as reported on a Federal Estate Tax Return Form 706 (“Form 706”) filed on behalf of CLIENT’s estate and as finally determined for federal estate tax purposes, but for purposes of this provision, excluding any such deductions qualifying under Section 2056 of the Code. If a Form 706 is not required to be filed for CLIENT’s estate, CLIENT’s Personal Representative shall prepare a Form 706 using the rules in effect for decedents dying as of the effective date of this Premarital Agreement, and this Section shall be interpreted as if a Form 706 were required to be filed.

This targeted provision may directly alleviate the client’s concerns about the relative value of a specific dollar amount, allowing the parties to agree upon a generous mandatory distribution of a specific dollar amount (that will be distributed if the client’s net worth does not decline dramatically).

Conversely, some clients condition the obligation to devise assets on the surviving spouse’s net worth at the time of the client’s death. For example, a marital agreement might provide that the requirement for the client to devise a specific dollar amount will be waived if the surviving spouse’s net worth exceeds $5 million at the time of the client’s death.

• Practical Considerations Regarding Net Worth Provisions — While relating or capping a mandatory distribution amount to the client’s net worth (or to the fiancé(e)’s or spouse’s net worth) may help alleviate the client’s concerns, one should carefully weigh the risks associated with this approach.

On the one hand, admittedly, drafting such clauses tends to add a degree of difficulty to the lawyers’ jobs in negotiating marital agreements and can also create an air of mistrust among the parties. The party proposing it should be ready for a response like: “How do I know you won’t intentionally order your affairs or transfer your assets so as to impose the cap provisions?”

On the other hand, bringing a net worth determination into the calculation may undermine the simplicity of the post-death distribution scheme. At the very least, it will require a formal determination of the client’s net worth (which might have been avoided if the client’s estate were not required to file a Form 706). Moreover, it could increase the risk of conflict between the surviving spouse and the client’s other heirs. The surviving spouse may seek to challenge any gifts or other transactions entered into by the client before death as attempts to reduce the surviving spouse’s distribution. The surviving spouse may also attempt to challenge the valuation involved in the determination of the net estate.

Clients should consider these risks carefully before proposing or agreeing to a net worth provision.

A Comprehensive Approach: Mandatory Distributions to Marital Trusts

Compared to mandatory outright distributions, mandatory distributions to marital trusts may offer clients greater flexibility. Many clients wish to ensure their future spouse (or current spouse) will be taken care of for the surviving spouse’s lifetime but do not want their assets to pass someday to the surviving spouse’s family or next spouse. At the same time, many clients often wish to ensure that their assets ultimately go to their descendants (or to specific charitable causes). Marital trusts can address both of these concerns by supporting the surviving spouse during the survivor’s lifetime and directing how the assets will be distributed after the surviving spouse’s death.

To draft a marital agreement with marital trust provisions, drafters may wish to consider the following.

• The Distribution Amount — The marital agreement should specify the amount that will be distributed to a marital trust. From a technical standpoint, the amount can be defined through the types of provisions described above (with respect to mandatory outright distributions), such as a fixed amount or a percentage of the estate that may vary over time. However, the client may be willing to agree to a higher amount because the client can control the disposition of the remainder interest in the marital trust. With some assurance that the descendants (or other heirs or charities) of the client will be taken care of after the surviving spouse’s death, the client might be willing to be more generous with the amount or percentage of the client’s estate passing to a marital trust (compared to passing outright). Thus, it may be possible to agree upon terms that provide more annual support to the surviving spouse via a marital trust.

• The Terms of the Marital Trust — The marital agreement should include a number of required terms for the marital trust. However, there is also some flexibility allowing practitioners to tailor the required terms of the marital trust for the parties.

For example, the required terms can leave most decisions to the client’s discretion and only require that the marital trust be for the sole benefit of the spouse:

Distribution to Trust for FIANCÉ(E). Notwithstanding anything contained herein to the contrary, CLIENT hereby agrees that, in the event FIANCÉ(E) survives CLIENT, the parties’ marriage has not been terminated by a Final Judgment, and no Action for Dissolution is pending on the date of CLIENT’s death, then CLIENT shall be required to devise or otherwise transfer to a marital trust for the primary benefit of FIANCÉ(E) (the “Marital Trust”) an amount equal to the Marital Distribution Amount; provided, however, the amount passing to the Marital Trust shall then be reduced by the value of any asset that passes outright to FIANCÉ(E) as a result of CLIENT’s death by operation of law (e.g., via beneficiary designation or joint ownership), valued in the same way such assets were valued in CLIENT’s Net Estate Upon Death. The amount passing to the Marital Trust shall be calculated pursuant to the Form 706 filed (or prepared) for CLIENT’s estate, subject to deductions and adjustments, all as defined in this Premarital Agreement. The terms of the Marital Trust shall provide that there may be no other beneficiaries of the Marital Trust during FIANCÉ(E)’s lifetime. The rest of the provisions of the Marital Trust not mandated herein shall all be in CLIENT’s discretion.

Using this simple required term as a starting point, the parties can negotiate any additional required terms that are needed to provide the surviving spouse with adequate comfort. For example, the agreement could provide that all net income of the marital trust must be distributed to the surviving spouse on an annual or more frequent basis. This provision is often acceptable to clients, who tend to include mandatory income distributions in marital trusts anyway (to qualify for the estate tax marital deduction).^[16]

One should keep in mind, however, that a provision requiring income distributions may lead to conflict between the surviving spouse and remainder beneficiaries. The surviving spouse could be inclined to prefer investments generating more income, while the remainder beneficiaries could prefer investments geared toward long-term growth. The trustee, who owes fiduciary duties to both the surviving spouse and the remainder beneficiaries, may be caught in the middle of this tension.

To reconcile the interests of the surviving spouse and the remainder beneficiaries, the marital agreement could require that the marital trust terms include mandatory distributions of a “unitrust amount” (instead of net income). The unitrust amount would be a specific percentage of the fair market value of the marital trust assets, determined on an annual basis. In other words, the annual payment could be a specific percentage of the fair market value of the entire trust, determined as of the last day of the prior year. As a result, the interests of the surviving spouse and the remainder beneficiaries would be aligned; all parties would seek maximum growth of the marital trust assets. As an added benefit, the estate could still receive the marital deduction from estate tax if 1) the unitrust amount is within a specific range of percentages and 2) the trust requires the mandatory distribution of the “greater of” the unitrust amount and the net income:^[17]

Distribution to Trust for FIANCÉ(E). Notwithstanding anything contained herein to the contrary, CLIENT hereby agrees that in the event FIANCÉ(E) survives CLIENT, the parties’ marriage has not been terminated by a Final Judgment, and no Action for Dissolution is pending on the date of CLIENT’s death, then CLIENT shall be required to devise or otherwise transfer to a marital trust for the primary benefit of FIANCÉ(E) (the “Marital Trust”) an amount equal to the Marital Distribution Amount; provided, however, the amount passing to the Marital Trust shall then be reduced by the value of any asset that passes outright to FIANCÉ(E) as a result of CLIENT’s death by operation of law (e.g., via beneficiary designation or joint ownership), valued in the same way such assets were valued in CLIENT’s Net Estate Upon Death. The amount passing to the Marital Trust shall be calculated pursuant to the Form 706 filed (or prepared) for CLIENT’s estate, subject to deductions and adjustments, all as defined in this Premarital Agreement. The Marital Trust shall require that an amount equal to the greater of (i) the net income of the Marital Trust or (ii) the Unitrust Amount be paid out at least annually to FIANCÉ(E) for FIANCÉ(E)’s lifetime, and there may be no other beneficiaries of the Marital Trust during FIANCÉ(E)’s lifetime. For purposes of this Section, the term “Unitrust Amount” shall be defined as an amount equal to Four Percent (4%), multiplied by the value of the assets in the Marital Trust in each calendar year. The rest of the provisions of the Marital Trust not mandated herein shall all be in CLIENT’s discretion.

In addition to mandatory distributions of income (or a unitrust amount), the fiancé(e) or spouse may also request mandatory terms authorizing the trustee to make discretionary distributions of principal for any purpose, and mandatory distributions of principal for specific purposes. For example, if the surviving spouse has significant medical expenses and the income distributions are insufficient, the marital trust could require that principal be distributed for the surviving spouse’s health needs. Similar provisions could be included with respect to virtually any purpose agreed to by the parties.

After determining the mandatory dispositive provisions, the parties may negotiate the trustee provisions governing the management of the marital trust. The client may wish to ensure that a neutral third party is serving at all times, and the future spouse may seek a guaranteed power to remove and replace the trustee of the marital trust. To accomplish both goals, the parties could agree to provide the surviving spouse with the right to remove and replace the trustee once during a specific period (e.g., once every five years), as long as the surviving spouse is required to appoint an independent party (e.g., a bank or trust company) as trustee. The agreement could go so far as to require a bank or trust company to serve as trustee at all times (keeping in mind, however, that the value of the marital trust may or may not justify the expense of appointing a bank or trust company as trustee).

The bottom line is: the trust provisions can be drafted in a wide variety of ways to address the concerns of both parties.

Conclusion

The parties to a marital agreement have a broad range of options with respect to their rights upon the death of a spouse. Instead of simply advising broad post-death waivers, counselors should explore these options with their clients to help identify the best solution for the parties’ marriage. If drafting trust provisions is outside one’s comfort zone, then we encourage drafters to engage co-counsel familiar with trusts and estates to participate in the drafting and negotiation of the marital agreements. Working together, family lawyers and estate planners can help craft tailored provisions designed to protect both parties, with the end result being a better and fairer agreement for the parties.

This column is submitted on behalf of the Real Property, Probate and Trust Law Section, William C. Wright, chair, and Allison Archbold and Homer Duvall, editors.