No-contest clauses deter challenges to your estate plan, but you might want to consider terms that allow for legit challenges related to undue influence.
Originally published on Kiplinger.com September 01, 2023
There are two ways to approach defending your last will or trust from a claim filed by an individual, or individuals, seeking to alter the terms you have chosen. One way is to simply allow your personal representative or trustee to defend your choices. Another is to include a no-contest clause that disinherits all claimants if they lose their challenge or for even filing the challenge in the first place.
The no-contest clause can be a powerful deterrent for a beneficiary who feels they are entitled to more than the share provided if they know that simply filing the challenge will forfeit even that share. But it is not a deterrent for a relative omitted from the estate plan altogether. And it may thwart an attempt by a relative seeking to actually protect your interest in how your estate is distributed at your death or to recover funds taken or expended by a person taking advantage of you before your death.
A no-contest clause warrants more attention
When your attorney drafted your estate plan, the discussion regarding the no-contest clause may have been brief. But it likely deserves more consideration. It seems a good thing to want these typical terms in your document:
1| To omit all heirs at law not specifically mentioned in the document.
2| To revoke the share provided for any person seeking:
• To claim a share to your estate, to increase their share or to claim certain assets in your estate
• To invalidate your document or any provision in your document, or
• To take any part of your estate in a manner not specifically described in the document
Many no-contest clauses will simply treat a challenger as having predeceased you (or having predeceased you leaving no issue), thereby passing their share according to other terms in the document. It is important in some states to include a specific direction as to what happens to their forfeited share.
A no-contest clause seems all well and good when the person challenging your estate plan is really trying to thwart your actual intentions, but what if their charges have some merit? For instance, there are numerous cases brought in courts because probable cause existed that the decedent was subjected to undue influence, even elder abuse, by a caregiver or relative put in charge of their finances. In some cases, the other relatives first discovered such abuse only after discovering depletion of the estate and the admission of a new last will to probate favoring this person above the decedent’s own family. The no-contest clause in that last will could cause a complete disinheritance for a petitioner seeking to protect the estate and any other person who appears in court to support that endeavor.
No-contest clause rules can vary by state
Not all states treat a no-contest clause the same. Some states refuse to enforce them as a matter of public policy. Others strictly construe the no-contest clause because they disfavor any forfeitures. In these states, an overly broad or vague provision may be voided. The many states that uphold a no-contest clause do so to promote public policies they find important, such as protecting the decedent’s intent, deterring challenges by disappointed heirs seeking a larger share at the expense of the other beneficiaries and protecting the estate from legal expenses in defending an unfair challenge.
Other considerations may weigh against enforcing a no-contest clause. You should strongly consider these if you want to tailor your no-contest clause or exclude it from your documents. They include:
1| Allow a court to determine the fairness of a challenge that may actually protect your intentions.
2| Bring to light any undue influence that depleted your estate or affected your decisions in case you were wrongly isolated from family or subjected to financial or personal abuse by a caregiver or relative.
3| Avoid punishing a proper challenge brought in good faith by excluding any petition or suit brought by a person:
• Only seeking additional information about your estate
• Seeking documentation of expenditures by a caregiver or relative in charge of your finances before you died
• Seeking a court’s interpretation of your last will or trust instruments
• Seeking to deny the probate of a last will drafted and executed under questionable circumstances, or
• Simply filing an appearance to question the appointment of the personal representative or the purported state of residence
This excerpt from the New Hampshire law on no-contest clauses (N.H. Rev. Stat. Ann. § 564-B:10-1014(b)) perfectly describes the wisdom of tailoring a no-contest clause to deter challenges that seek to thwart your intent while protecting your estate from abuse:
A no-contest provision shall be enforceable according to the express terms of the no contest provision without regard to the presence or absence of probable cause for, or the beneficiary’s good or bad faith in, taking the action that would justify the complete or partial forfeiture of the beneficiary’s interest in the trust under the terms of the no-contest provision. A no-contest provision shall be unenforceable to the extent that the trust is invalid because of fraud, duress, undue influence, lack of testamentary capacity, or any other reason. In the case of an action solely to challenge the acts of the trustee or other fiduciary of the trust, a no-contest provision shall be unenforceable to the extent that the trustee or other fiduciary has committed a breach of fiduciary duties or breach of trust.
Ensure that caregivers are monitored by others
Finally, all your efforts to document your intentions in your last will and any trusts may be undone if you are taken advantage of by a caregiver or relative who succeeds in isolating you from other loved ones for their own benefit. You can take steps now to ensure that multiple trustworthy people will monitor any caregiver, including a sibling or other relative.
First, identify your chosen estate planning attorney to multiple relatives and give that attorney permission to share general information about your documents, specifically including whether new documents are sought or appear from another law firm.
You can also draft your power of attorney forms to identify multiple people to serve rather than a single person or identify a second person whose role is not to make decisions but to monitor your agent’s activity and challenge any questionable expenditures.
As you age, you can ensure that a friend or relative who is not your primary caregiver is included in your decisions to select vendors for lawn care, housekeeping, home improvement or home maintenance. Most important, keep in touch with friends and family and encourage frequent in-home visits, texts and calls.
Timothy Barrett is a senior vice president and trust counsel with Argent Trust Company. Timothy is a graduate of the Louis D. Brandeis School of Law, 2016 Bingham Fellow, a board member of the Metro Louisville Estate Planning Council, and is a member of the Louisville, Kentucky and Indiana Bar Associations, and the University of Kentucky Estate Planning Institute Program Planning Committee.