Oregon
elders who expect trouble among the heirs when it comes time to
distribute the estate often include a no-contest clause in the will
or trust. A no-contest clause, also known as an in terrorem
clause, normally says that anyone who contests the will or trust gets
disinherited. People put these clauses in their estate planning
documents to discourage litigation. And that it does. Oregon elder
law and probate lawyers like me who sometimes challenge the validity
of wills and trusts look for these clauses and tread carefully
whenever we find them.
This
post will examine how no-contests clauses work and don't work. In
practice, the clauses are tricky end can, under certain
circumstances, protect the bad guys while the good guys get cheated.
Let's
get the obvious out of the way at the beginning. No-contest clauses
only dissuade litigation by someone who receives something of value
from the estate. Let's say Adam has two sons, Cain and Abel. Adam
decides to leave his entire estate to Abel, and puts a no-contest
clause in his will saying that if anyone challenges the will, that
person receives nothing. Cain thinks that Adam did not have the
mental capacity to make a will when he disinherited Cain, or that
Abel used undue influence to get Cain disinherited. Therefore, Cain
lawyers up and challenges the will. Cain is not dissuaded by the
no-contest clause because he receives nothing anyway.
If
Cain's challenge is unsuccessful, the judge deciding that Adam had
testamentary capacity and was not unduly influenced, then Cain is no
worse off than he was under the will. If, however, Cain is
successful, the judge ruling that old Adam was nutty as a fruitcake
when he signed the will, then the whole will, including the
no-contest clause is thrown out. Adam is now intestate—meaning he
died without a valid will—and therefore his estate is distributed
according the law. The law is that when you die unmarried without a
valid will your children take your estate in equal shares. Thus, Cain
and Abel each get half. Cain has succeeded in getting half of the
estate even though the will had a no-contest clause.
The
moral of the story is that if you think that your son, Cain, might
challenge the will and you want a no-contest clause to stop him, you
have to leave him enough money so that he does not want to risk
losing it. Let's say Adam had a million dollar estate and left
$900,000 to Abel and $100,000 to Cain. Now, if Cain challenges the
will, he risks losing $100,000 to gain $400,000. It is a risk he will
think long and hard about. Having $100,000 is significantly better
than having nothing.
The
complexity of no-contest clauses does not stop here. The clause,
under certain circumstances, can protect bad guys and prevent your
rightful heirs from getting their inheritance.
Let's
say that Adam puts his no-contest clause into a trust that leaves his
estate equally to his loving sons, Cain and Abel. When he executes
the trust, Adam is healthy, robust and clearly capable of doing an
estate plan. The no-contest clause disinherits anyone who challenges
the trust.
When
Adam is on his deathbed, wracked with pain and suffering from
delirium, Cain comes in and puts in front of Adam an amendment to the
trust which disinherits Abel and leaves everything to Cain. Adam dies
the next day.
Abel
is furious. He goes to Cain and claims that Adam did not have the
mental capacity to write the amendment and was pressured by Cain to
sign the document. Cain admits it. Cain says, "I am sure that no
judge would uphold the amendment. However, the no-contest clause was
in the original trust. The no-contest clause was signed when Adam was
capable and not subject to undue influence." Thus, if Abel
challenges the amendment, he has challenged a provision of the trust,
and will be disinherited even if your challenge succeeds. Abel, who
is really the good guy, receives nothing from the trust and receives
nothing if he challenges the wrongfully obtained amendment.
The
situation described above would be the same if Adam had written a
will and Cain had shown up at Adam's bedside with a codicil. (A
codicil adds to or changes a will without revoking the original
will).
I
don't know of any court that has truly tackled this problem, but it
appears that if you put a no-contest clause in your estate plan, and
then later someone uses trickery to get you to change that plan (but
without actually revoking the original document with the no-contest
clause) you may have made it very risky for your rightful heirs to
challenge the wrongfully obtained document.
I
get cases with these kind of problems because families keep putting
estate planning documents in front of elders while they are dying.
The family is in stress and no person should ever be doing estate
planning from a hospital bed.
So
what to do to protect yourself? Make your estate plan when you are
healthy and do not put no-contest clauses in your estate planning
documents. Because the clauses only effect those people who receive a
substantial portion of your estate, only those you really care about
are affected. If a document is wrongfully obtained or made invalid
because of your dementia, it is probably better that one of your
loved ones be able to bring the problem before a judge. You do not
want to make your loved ones unable to challenge fraudulently
obtained documents.
If
your attorney insists on a no-contest clause in your estate planning
document, clearly state that the no-contest provision applies only to
the original document and does not prevent the challenge of a codicil
or amendment.
We
all want to avoid litigation over our estates. Litigation is bad, but
worse is having your estate go somewhere you never intended. Don't
handcuff your family's ability to use the courts as they were
intended to be used.
