Posted On: July 29th 2016
Abstract: No matter how clearly an estate plan communicates the deceased person’s wishes, there’s a chance that one or more family members will become disgruntled over the outcome and challenge the estate plan. One strategy for protecting a plan is to include a “no-contest” clause in the will or revocable trust (or both). This article explains how a “no-contest” clause works and provides alternative strategies that minimize incentives to challenge a plan.
Estate planning is all about protecting your family and ensuring that your wealth is distributed according to your wishes. So the idea that someone might challenge your estate plan can be disconcerting. One strategy for protecting your plan is to include a “no-contest” clause in your will or revocable trust (or both).
A no-contest clause essentially disinherits a beneficiary who contests your will or trust — typically on grounds of undue influence or lack of testamentary capacity — and loses. It’s meant to serve as a deterrent against frivolous challenges that would only create unnecessary expense and delay for your family.
Most, but not all, states permit and enforce no-contest clauses. And even if they’re allowed, the laws differ — often in subtle ways — from state to state, so it’s important to consult state law before including a no-contest clause in your will or trust.
Some jurisdictions have different rules regarding which types of proceedings constitute a “contest.” For example, in some states your heirs may be able to challenge the appointment of an executor or trustee without violating a no-contest clause. And in some states in which a no-contest clause is generally enforceable, courts will refuse to enforce the clause if a challenger has “probable cause” or some other defensible reason for bringing the challenge. This is true even if the challenge itself is unsuccessful.
If you live in a state in which no-contest clauses are strictly unenforceable, you might still choose to have one in case you: 1) move to another state that does enforce no-contest clauses, 2) own property — such as real estate — in another state where it’s enforceable, or 3) decide to establish a trust that’s governed by the laws of another state.
If you leave a child — or another person who otherwise would inherit from you — out of your will or trust, a no-contest clause will be ineffective. Why? Because that person has nothing to lose by challenging your plan. A better strategy is to leave that person enough to make him or her think twice before contesting your plan and potentially receiving nothing.
A no-contest clause can be a powerful deterrent, but it’s also important to design your estate plan in a way that minimizes incentives to challenge your plan. To avoid claims of undue influence or lack of testamentary capacity, there are several steps you can take, including:
Of course, you should also make an effort to treat your children and other family members fairly, remembering that “equal” isn’t necessarily fair, depending on the circumstances. If your plan contains any unusual terms — such as leaving the bulk of your estate to charity — be sure to meet with your family and explain the reasons for your decision.
As you develop or update your estate plan, it’s important to think about ways to protect yourself against challenges by disgruntled heirs or beneficiaries. A no-contest clause can be an effective tool for discouraging such challenges. Discuss this option with us to determine whether it’s the right fit for your plan.