Will Contests – Does a “No-Contest” Clause Really Work?

A no-contest clause in your will may discourage a will contest.
A no-contest clause in your will may discourage a will contest.

We live in a litigious society. Unfortunately, even family members sometimes file lawsuits because they are dissatisfied with what their parents or loved ones leave them in a will or trust. Some are so disgruntled that they decide to contest or challenge the validity of a will or trust, which can delay its administration for years and result in thousands of dollars in legal fees. If you are concerned that any of your beneficiaries may seek to challenge your will or trust, a no-contest clause might be one method you can use to discourage them from pursuing this course of action.

What Is a No-Contest Clause?

A typical no-contest clause provides that a beneficiary who disputes the validity of a will forfeits any inheritance or benefit they otherwise would have received according to its terms. It will not prevent someone who is not a beneficiary named in your will or trust from contesting it though.

Are They Enforceable?

In Texas, no-contest clauses are enforceable unless the will contestant shows that he or she had “just cause” for contesting the will and that the will contest is in good faith. The goal is to discourage will contests that are not brought in good faith (for example, a person might threaten a will contest in the hopes that the rightful beneficiaries would be willing to settle for an amount less than the cost of defending the will contest),  but to allow contests for legitimate reasons, such as a forgery, or when a purported will is executed by an incapacitated person or a person who has been unduly influenced by another.

What Are the Pros and Cons?

These types of clauses have some advantages as well as some disadvantages, as listed below:

Pros of a no-contest clause

  • Honors your right to give your property to the parties you have chosen in the way you want, as expressed in your will or trust
  • Discourages baseless challenges to a will or trust by a disgruntled beneficiary
  • Discourages meritless lawsuits aimed at forcing a settlement by a dissatisfied beneficiary
  • Avoids lengthy and expensive litigation that will deplete your estate and delay administration

Cons of no-contest clause

  • Causes a beneficiary to suffer a forfeiture of his or her inheritance for enforcing his or her right to challenge the will’s validity
  • Impedes the court’s ability to determine if the will or trust is valid and ensure that it was not executed as a result of unlawful means, for example, where an unscrupulous child convinces an elderly parent with dementia to sign a new will beneficial to that child shortly before the parent’s death

Create an Estate Plan That Keeps the Peace

If you see trouble brewing and are concerned that family members could contest your will or trust, a no-contest clause is one tool that could discourage dissatisfied beneficiaries from seeking to have it declared invalid. Another possibility that could forestall a will or trust contest is to conduct a family meeting during which you can explain your reasons for distributing your money and property in the way you have. An experienced estate planning attorney can help you create an estate plan for your unique circumstances and to employ all available tools, including a no-contest clause, to decrease possible conflict within the family

You may also be interested in https://galligan-law.com/does-your-executor-know-what-to-do/.

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How a Letter to Your Executor or Trustee Conveys Your Wishes

A letter to your executor or trustee can help clarify your wishes and promote your goals for your beneficiaries.
A letter to your executor or trustee can help clarify your wishes and promote your goals for your beneficiaries.

A detailed, informative letter can be invaluable to those you have designated to carry out your wishes after you’re gone, says the article “Why You Should Write a Letter to Your Executor—and What to Say in It” from The Wall Street Journal. Your last will and testament or living trust does have many directions. However, there may be things you want your executor or trustee to know that may not be included in your will or living trust. This is especially important if death is sudden. The letter, which you should sign and date, can help prevent potential disputes by minimizing any confusion around your intentions, priorities and goals.

One thing to keep in mind when writing out instructions is that, if you have a will-based estate plan, the executor is charged with the responsibility of paying your debts and final expenses and then distributing the remaining assets to the beneficiaries. So the executorship is really a relatively short-term position. If you have a trust-based estate plan, it is your successor trustee who has these duties.

Because the executor has no control over your assets after they are distributed to your beneficiaries, a letter of instruction will be most helpful if you have created trusts for your beneficiares in your will or living trust. Think of the trustee of these trusts as being involved long-term. That said, there may be situations when a letter to the executor would be very helpful. For example, a letter could explain why you have decided to treat beneficiaries differently in your estate plan.

Here are some things to consider when drafting a letter to your executor or trustee.

Your thoughts about wealth. Share your story about how you came to the assets that you are leaving in your will. How was your wealth created, what do you value and what are your long-term goals for your wealth? Do you want family members to invest the assets, so they grow over generations, or do you want them used for college education costs for grandchildren?

Describe key players in the family. It is best if your executor or trustee knows the members of your family.  However, they may not know the family dynamics or history. Giving them your insights, may help them anticipate issues. Does one child tend to take over and speak for everyone, without being asked? Are there substance abuse issues in the family that need to be considered? Share your concerns, so your executor or trustee can be mindful of how the family works (or doesn’t) as a unit.

What matters to you? This is especially important, if you don’t want your beneficiaries to be dependent upon their inheritance, instead of becoming self-reliant. Share your values to encourage their earned success. Make it clear if you want to protect the family wealth, so it can be used to empower future generations and for family members to be responsible for their own financial well-being. Evidence of your intent will help a trustee if a beneficiary challenges the way a trustee is managing and making distributions from the trust.

Give your  trustee the power to make decisions, even when that means saying no. Considering the size of your wealth and the family members who are your beneficiaries, you probably have a good idea of who would do what with their inheritance. If you don’t want your wealth to be used for a start-up by a son whose financial management capabilities are questionable, say so in the letter to your trustee. If you are hopeful that a daughter will use her inheritance for a down payment on a home for her family, you should also express that.

A good estate plan is not just about who gets what and when. A good estate plan is one which tries to minimize conflict and promotes the values you hold dear. That’s why it’s important to consult with an experienced estate planning attorney who has worked with many families and who understands the challenges and pitfalls that are presented any time wealth is transferred from one generation to the next.

You may also be interest in https://galligan-law.com/does-your-executor-know-what-to-do/.

Reference: The Wall Street Journal (April 8, 2020) “Why You Should Write a Letter to Your Executor—and What to Say in It”

 

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Common Mistakes Made on Beneficiary Designations

Assets like life insurance, retirement accounts and annuities are governed by beneficiary designations.
Assets like life insurance, retirement accounts and annuities are governed by beneficiary designations which override your will.

Many accounts and other assets are governed by beneficiary designations. Examples include life insurance, 401(k)s, IRAs, and annuities. These assets rely on contractual provisions with the financial institution to designate who receives the benefits upon the death of the owner.

Kiplinger’s recent article entitled “Beneficiary Designations – The Overlooked Minefield of Estate Planning” describes several mistakes that people make with beneficiary designations and some ideas on how to avoid problems for you and your family members.

Believing that Your Will is More Powerful Than It Really Is. Many people mistakenly think that their will takes precedence over a beneficiary designation form. This is not true. Your will controls the disposition of assets in your “probate” estate. However, the accounts with contractual beneficiary designations aren’t governed by your will because they pass outside of probate. That is why you need to review your beneficiary designations whenever you review your estate plan.

Allowing Accounts to Fall Through the Cracks. Inattention is another thing that can lead to unintended outcomes. A prior employer 401(k) account can be what is known as “orphaned,” which means that the account stays with the former employer and isn’t updated to reflect the account holder’s current situation. It’s not unusual to forget about an account you started at your first job and fail to update the primary beneficiary, which could be a former spouse.

Not Having a Contingency Plan. Another thing people don’t think about is that a beneficiary may predecease them. It is important to name a contingent or secondary beneficiary in the event the first beneficiary is not survivig.

Not Paying Attention to a Per Stirpes Election. If a person names several beneficiaries (such as children) as primary beneficiaries to share equally in the account or life insurance policy at the owner’s death, what happens if one of the beneficiaries is not surviving? Some beneficiary designation forms state that the deceased beneficiary’s share automatically goes to the other surviving beneficiaries. Other beneficiary designation forms give the owner the option to state that the deceased beneficiary’s share should pass to the deceased beneficiary’s children. This is known as a per stirpes election. Many times people are unaware as to which option they have chosen on the beneficiary designation form.

Naming a Minor or Incapacitated Person as a Beneficiary. If a minor or incapacitated person is named as beneficiary, unless the beneficiary designation form allows for the appointment of a custodian or trustee to accept the benefits on behalf of the minor or incapacitated person, a court-appointed guardian may be necessary for the minor or incapaciated person to receive the benefits. Also keep in mind that if an incapaciated person you’ve named as beneficiary is receiving government benefits, distributions from a retirement account, annuity, or life insurance policy, may jeopardize his or her eligiblity to receive the government benefits.

It’s smart to retain copies of all communications when updating beneficiary designations in hard copy or electronically. These copies of correspondence, website submissions and received confirmations from account administrators should be kept with your estate planning documents in a safe location.

Remember that you should review your estate plan and beneficiary designations every few years to make sure that they are coordinated and that they say what your really want.

You may also be interested in https://galligan-law.com/trust-owned-life-insurance-in-your-estate-plan/.

Reference: Kiplinger (March 4, 2020) “Beneficiary Designations – The Overlooked Minefield of Estate Planning”

 

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