It seems like challenges to wills and trusts have become increasingly common. We often hear news stories about celebrities whose families spend a great deal of time and money fighting high-profile battles over their inheritances.
Many people who contact our law office for estate planning services follow the news. They ask us how to prevent fighting in their own families, ensuring that matters run smoothly as intended. We talk with them about the strategies available to minimize infighting, and the topic of a no-contest clause is often raised.
What Is a No-Contest Clause, Exactly?
A no-contest clause (sometimes called a “penalty clause” or “in terrorem clause” in Latin) is a special provision that can be added to a will or trust. It says that any beneficiary who tries to challenge the document will be eliminated from distribution of assets. In short, if you try to challenge the will, you will be cut out of it. If you try to challenge the trust agreement or the administration of the trust, you won’t receive any funds.
Is it a Good Idea?
There is no straightforward answer here, as every family is different. There are reasons no-contest clauses may be a good idea, and there are reasons that lawyers advise against them.
Benefits of a No-Contest Clause
A no-contest clause can stop a relative who is dissatisfied with the size of the distribution from mounting a legal challenge that disrupts the family and costs everyone involved. The clause prevents that person from bringing a legal challenge that might not have merit. In that way, it protects family harmony.
No-contest clauses can also be a way for people to influence beneficiaries’ lifestyles through the will or trust. Used that way, the provision can dictate forfeiture of assets if a beneficiary makes a certain life decision. People have used no-contest clauses to make sure that their loved ones did not marry outside of their race or religion, that they graduated from college, or that they had children within a certain time period.
Pitfalls of a No-Contest Clause
No-contest clauses do not work in all situations. The law sets certain limits on enforcing them. If the court believes that the person challenging a will or trust has a reasonable basis for doing so, it may not enforce the clause—even if the court rules against that person in the underlying challenge.
There are many situations in which this happens. In fact, most courts declare penalty clauses unenforceable in most situations. A beneficiary may allege that the testator (the person who created the will or trust) did not have the capacity to do so, often due to factors like decreased health or dementia. He or she might allege that the will wasn’t properly drafted, signed or witnessed.
Undue influence may also be a factor. This is often alleged when someone is highly involved in the care of an elderly or vulnerable adult. Other beneficiaries may allege that person executed influence over the document and unfairly prejudiced the way it was written.
How Can I Know What’s Right for Me?
The best way to make decisions about your own will or trust is to talk with a lawyer. An attorney can go through the specifics with you, tell you how the law might apply, and help you understand your options. Reading a blog is a start, but the best way to take real action is to reach out for legal help.