A will contract is an agreement made with another person, often a spouse, and is more likely used in a second or later marriage where you legally bind yourself to a plan for how assets will be distributed. In case of death or incapacity, a will contract ensures that your spouse cannot change the plan you have, according to a recent article from Forbes, “Will Contract: Should You Have One?”
For example, Jim and Jane are in a second marriage with two children from prior marriages. They understand the importance of a new will but are concerned about their agreed deal. Jane’s children will receive 60% of the overall estate because she brought more wealth to the marriage. Jim’s kids will get 40%. If all goes as planned, Jane’s kids will each get 30% of their estate, and Jim’s kids will each get 20%.
However, what if Jane dies and the entire estate is left to Jim, who decides to give each of the four children an equal 25% share? Or did he cut out Jane’s children completely? Without a will contract confirming their agreement, Jane’s children have no protection. While Jane could have created a trust to protect her children, this may not fully protect her children if Jim decides to pursue an elective share of the entire estate, including trusts.
Both parties will sign a new will and perhaps trusts, implementing their agreed-upon plan. These documents may be attached to the will contract as exhibits. The agreement may require each of them to provide the other with advanced notice before any changes are made to estate planning documents. In the case of incapacity, you may agree on who should get the notice. You may even provide that if one of you is incapacitated, no changes may be made without the approval of an independent person named in the agreement.
A will agreement may limit or even prohibit either of the spouses from making any significant gifts without the other spouse's written consent and/or specified individuals. If this is not included, either one of the couple or their agents under durable powers of attorney could undermine the entire will contract by giving away assets while living.
Are there any downsides to a will contract? There are additional costs and complexities. However, they are likely worth the added protection provided to heirs. Creating the will contract will clarify the “what ifs” in the same way a pre-or post-nuptial agreement brings up all financial dealings that may not otherwise have been addressed.
Failing to have a will contract in situations of a second marriage, short-term marriages, or quirky, questionable circumstances may lead to significant estate or divorce issues. While they are not yet widely used, expect this kind of agreement to gain popularity.
As with many estate planning techniques, will contracts should be discussed with your estate planning attorney to see if your situation would benefit from making this part of your estate plan.
Reference: Forbes (Feb. 4, 2024) “Will Contract: Should You Have One?”