You can generally establish a plan that distributes your estate as you see fit, however the possibility of a contest exists whenever your plan includes an unequal or unexpected gift. If a spouse or child disagrees with your decisions, he or she may try to challenge the validity of your estate plan on a number of grounds, such as by claiming that you made it when you lacked mental capacity or that someone improperly influenced you into creating it. If successful, a court will invalidate your will or trust, and your assets would not pass in accordance with your wishes. If you are concerned about someone challenging your will or trust after your death, a no-contest provision can allow you to rest assured that your desires will be carried out.
A no-contest clause is intended to deter a fight amongst heirs by providing that anyone who makes a legal challenge, and loses, will forfeit their inheritance. With trust and estate litigation on the rise, and the increasing ability to accomplish post-mortem changes to estate plans, a no-contest clause is a good idea if you have family member or beneficiary who might be unhappy with their distribution.
Do courts enforce no-contest clauses? Yes they do. Most states allow no-contest clauses because it is generally understood that an individual is free to dispose of their property upon death on their own terms. In addition, a testator may impose conditions on gifts from the estate that restrict or limit the timing, nature or extent of a recipient’s ownership of the property.
Colorado permits enforcement of no-contest clauses subject to the “probable cause exception.” This principle is set forth in CRS Section 15-12-905 and states that a provision in a will “purporting to penalize any interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting the proceedings. In other words, the contesting party must have a reasonable belief, based upon sufficient information and advice that the claim would be successful or their challenge will result in disinheritance. The Colorado Court of Appeals has even gone so far as to apply a no-contest clause that was not included in a pour over will but was found in an associated trust incorporated by reference.
In fact, nearly all states permit no-contest clauses. The majority of states follow the same analysis as Colorado and have also extended the enforcement of no-contest clauses to wills associated with trusts. Currently only Indiana and Florida expressly prohibit the enforcement of no-contest clauses and Vermont is the only state that does not address the matter either in statute or case law.
The key is that you must be willing to leave something of value to the potentially disgruntled heir that is of significant enough value to act as a deterrent. A no-contest clause has no teeth unless the beneficiary who intends to bring a contest has something
to lose. Your plan should then provide for a bequest to all potential challengers in an amount sufficient to make them consider carefully whether they wish to risk losing those bequests by commencing a baseless contest.
What kind of actions or conduct will a no-contest clause prevent? A stated contest of or objection to the validity or enforceability of a will or trust likely constitutes an attack sufficient to trigger a no-contest clause. However, legitimate challenges such as asserting a statutory right to inherited property; seeking clarity regarding a fiduciary’s duties; seeking instruction regarding the terms; and filing an action against a trustee for breach of fiduciary duty, generally do not constitute a contest sufficient to trigger the clause.
Although you cannot avoid the possibility of a will contest entirely, a no-contest clause may assist in making protracted litigation over your estate less likely. As a result, the no-contest clause has become one of the most effective tools in estate planning to prevent a challenge to your estate plan. An experienced estate planning attorney will help you evaluate your circumstances and determine if no-contest clause is best for you and your family. You should carefully consider your family dynamics in reaching your decision on this issue, in conjunction with the overall goals of your estate plan. If you have questions about estate planning, contact the legal team at Dunlap Bennett & Ludwig today.
Posted in: Estate Planning