Message to heirs: Take it or leave it
By Alan G. Orlowsky, J.D., C.P.A.
A few years ago, a client who I’ll call Jones made out a will in which he left his oldest child a substantially smaller share of his estate than he left each of his two other children. This oldest child, who I’ll call Susan, had distanced herself from the family as a young adult and, in Jones’s view, perpetuated strained relations with her two siblings.
Jones was worried that Susan would contest the will and cause headaches — not to mention huge attorney’s fees — for his other two children. In this case, I advised Jones to include a no-contest provision in the will.
A no-contest provision, which can be used in trusts as well as in wills, usually goes something like this: If any beneficiary under this will [trust] shall commence or participate in any proceedings to contest the validity of this will [trust] or assert a false claim against my estate, such beneficiary and his/her descendants shall be deemed to have predeceased me for purposes of administrating my estate.
In other words, an heir who contests the will forfeits his or her inheritance (as though he or she were already dead). Courts routinely “give full effect” to — meaning they validate — no-contest provisions, as long as they are properly written and do not create a grossly unjust result.
Jones died recently, and though Susan did complain loudly about her meager 20 percent share of her father’s estate, she did not contest the will.
Without a no-contest provision, Susan probably would have contested the will, costing her siblings tens of thousands of dollars in legal fees and possibly delaying the settlement of the estate by a few years.
In Susan’s case, she at least had a concrete reason to feel slighted – she received less than an equal share. In many will contests, the motivation isn’t so concrete. Even when siblings receive roughly equivalent shares of an estate, one of them may perceive inequity where there is none, raise objections purely out of spite, or create a conflict to carry some ancient family feud to a new battleground. It happens all too often.
No-contest provisions are useful, therefore, not only when your will distributes assets unevenly. They may help avoid costly delays when siblings are apt to fight over their inheritance no matter how you distribute your assets.
You can broaden the scope of the no-contest provision with a little creative language. For example, in one case a client named Smith (not his real name) appointed his son as executor of his estate. His daughter, an attorney, was angry because she was not named executor. When Smith died, the daughter sued her brother, claiming falsely that he had, in his role as executor, mishandled the estate’s affairs and charged it too much money for his time.
If you anticipate such a situation, you can include language in your will’s no-contest provision that effectively “deems” any beneficiary to have “predeceased” you if they object to the executor’s actions or duties without basis.
If no-contest provisions are effective at preventing disputes, why not include them in all wills and trusts? By its nature, the provision implies that disharmony or even hostility exists among family members. Some heirs consider it an insult, or symbolic of an overly controlling parent.
In fact, in archaic legalese, this kind of provision was known as an in terrorem clause. The translation from Latin is: “in terror, or by way of threat.” Throughout the history of English jurisprudence, the in terrorem clause has been avoided.
If you as a parent have good reasons to distribute assets unequally among your children, and you expect that one will feel shortchanged, an alternative to including a no-contest provision is to set forth your reasons in a memo and attach it to the will or trust. If you’re not sure whether a no-contest provision is the right thing for you, consult your attorney.
The four most common legal grounds for contesting a will or trust are the following:
Alan G. Orlowsky, President of Orlowsky & Wilson, Ltd. in Lincolnshire, Illinois, has been counseling people on estate planning for 28 years. He previously worked for the IRS in its Estate and Gift Tax Division. He also worked for the Deloitte & Touche accounting firm, and he has taught taxation and accounting at Loyola University of Chicago, School of Business.
Al is a contributing author of the book 21st Century Wealth (Esperti Peterson Institute, Denver, 2000), and has written numerous articles on the subject of estate planning. Contact Alan Orlowsky by email or call 847-325-5559.