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.