The news is full of stories about the famous who didn’t bother to make a will to dispose of their substantial fortunes. And though many others did make a plan, various issues with their testamentary documents have led to costly and protracted litigation. Some examples:
- Beatle John Lennon’s will failed to mention his first son, Julian Lennon.
- Actor Gary Coleman had a 1999 will probated, with a 2005 will and a 2007 holographic codicil later surfacing that left all to his third wife, from whom he was divorced when he died.
- Hotel magnate Conrad Hilton’s will left $100,000 to his daughter with Zsa Zsa Gabor and the bulk of the rest of his millions to charity. The daughter filed suit and lost.
- Railroad heiress Huguette Clark left two wills, 42 days apart, for her $400 million estate, with the second will disinheriting family members named in the first.
- Singer James Brown left much of his estate to charity, with little passing to his wife and children.
Sophisticated planning by the wealthy elite doesn’t preclude disappointed family members and hangers-on from trying to upend the plan. Adding an in terrorem provision (no-contest clause) to a will or revocable trust is a traditional strategy to discourage attacks. It can cause the forfeiture of an inheritance, for example, when a person objects to being excluded from a will or trust, the appointment of the personal representative or trustee, or claims to be a creditor after a probate court denies such status.
Since, however, no-contest clauses are unenforceable in Florida and Indiana, and courts in other states may refuse to enforce them under certain fact scenarios, other preemptive action should be considered. Here are a few strategies:
1. Authorize personal representative or trustee to pay costs of a potential contest. Some states’ probate and trust codes — like Florida, for instance — expressly authorize personal representatives and trustees to litigate on behalf of an estate or trust or hire attorneys for that purpose. In other jurisdictions where the code is silent, a will or a revocable trust may be drafted with such provisions. Even when a potential heir is omitted from a will or trust, knowledge that assets of the estate or trust could be used for litigation expenses and thus potentially diminish the value of assets available for recovery in a lawsuit may deter a contest.
2. Require mediation for disputes. Some states, such as Virginia, allow the use of mediation, arbitration, or alternative dispute resolution procedures to resolve issues of trust interpretation or administration. A will or trust could require a potential contestant to use an alternative to litigation, and provide guidelines for dispute mediation, such as the process for selecting mediators, whether it is an adjudicatory or collaborative process, and the scope, timing and nature of mediation.
3. Use a litigation holdback fund. Rather than forfeiting his/her entire interest by filing a lawsuit, the beneficiary’s interest could be escrowed, with access restricted during a contest. The interest when eventually paid to the beneficiary would then be reduced by the expenses of litigation. Similar to the first bulleted item, a potential reduction in the assets available after the lawsuit provides a disincentive to initiate the suit in the first place.
4. Create a separate trust for a contentious beneficiary. Trust codes give a beneficiary the right to request a complete copy of the trust agreement created for such person’s benefit. By creating two revocable trusts naming different beneficiaries, those named in Trust One would not see the contents of Trust Two, and vice versa. This could prevent a disgruntled family member from comparing his/her trust interest to that of another trust for other relatives. Note that this approach may be unsuccessful if the beneficiaries allege a fraudulent transfer to create the separate trusts.
5. Address common grounds for contests in advance. An anticipated contest based on common attacks on capacity or a document’s validity may be derailed as follows:
- Not of sound mind. For disputes about lack of testamentary capacity, have the testator/settlor undergo an examination by two physicians for capacity issues. Provide the physicians’ signed statements as schedules to the will or revocable trust.
- Forgery or manipulation. To counter claims of falsifying a document or manipulation into signing a document without a clear understanding of its provisions, include a statement of testator/settlor intent in the will or trust about the estate plan.
- Invalid execution. For charges of undue influence, or lack of valid execution, execute the will or trust during filming of a video. Explain the dispositive scheme and inclusion of beneficiaries. Obtain a signed statement from each witness and the notary. Have a third-party certify the video’s authenticity.
- Later will or trust. For allegations that a will or trust was previously revoked, include statements in a video about the documents being the most recent versions and that they have not been revoked.
6. Create a condition precedent to receiving the interest. State that a beneficiary would receive a share of the estate if such person does not initiate a contest for a certain time-period, such as two years after death. This alternative uses the risk of forfeiting one’s interest in the near-term to deter litigation. It also may give the potential contestant time to reconsider his/her disappointment over the inheritance. A disadvantage is that a court may find it constitutes a prohibited in terrorem provision or is otherwise unenforceable based on the factual situation.
The strategies previously mentioned are alternatives to using an in terrorem provision. Of course, one’s will or trust could always include a no-contest provision anyway. Note that having such a clause did not prevent a Florida will from being admitted to probate. Plus, the presence of such a provision may discourage beneficiaries from pursuing litigation, even when the likelihood of enforcement seems weak.
Individuals concerned about protecting their estate plans should consult a qualified attorney to review potential vulnerabilities to attacks. Working with a practitioner in advance may thwart a potential contest or at least help to mitigate the damage, if one does occur.
Linda is Of Counsel at Ivins, Phillips & Barker. She advises clients on forming and revising their estate plans and analyzes estate, income, generation-skipping transfer, and gift taxation matters for high-net-worth individuals and families. Linda’s significant experience also includes analysis of complex state trust administration and non-tax issues, charitable gift planning and real property transfers. Prior to joining IPB, Linda practiced law for seven years at an AmLaw 100 firm. During her tenure in the Estates, Trusts, and Tax Planning Group, she gained significant experience with the administration of large and complex estates, formation of private foundations, and high net worth guardianships. She is the author of articles on trusts, estates, and tax topics and has spoken at the ABA, DC Bar, and breakfast briefings on fiduciary administration issues.
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