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No-Contest Clauses in Wills and Trusts

 

No-Contest Clauses in Wills and Trusts

Is there a chance that any of your beneficiaries could be so disgruntled about what you’ve left them in your last will and testament or trust that they would bring a legal challenge against it?

If so, you may consider adding a “no-contest clause” to your will, which provides that anyone who disputes the validity of the document in court will end up inheriting nothing at all.

What exactly happens in the case of a contested will or trust, and can a no-contest clause really help you avoid that whole mess? Read on.

The Process of Contesting a Will or Living Trust

A last will and testament communicates your wishes regarding the distribution of your property after your death. A living trust holds your assets for your benefit during your lifetime and for transferring to your chosen beneficiaries at your death by the person you have designated as your “successor trustee.”

So what happens if someone wants to contest a will or trust?

Contesting a will requires that a beneficiary file a formal legal challenge against the validity of the will. A person must have standing to bring a will contest, which means he or she must have a financial interest in the estate, usually as a named beneficiary or someone who is entitled to inherit based on existing law.

Grounds for a will contest may focus on the testator’s capacity—that he or she was not of sound mind when the document was executed—or external forces such as undue influence, fraud, or duress, all of which allege that someone had forced the hand, so to speak, of the testator in drawing up the will.

Additionally, a will contest may seek to present a newer version of the document, alleging that it is the valid one.

Challenges to the validity of a trust are similar in nature and generally call into question whether the trust accurately reflects the trust creator’s wishes. As with a will, duress, fraud, undue influence, and even ambiguity in the trust’s terms may be alleged.

The process for disputing a will or trust can mean additional costs for the estate—and less inheritance for beneficiaries. And since we’re talking about court processes, it’s no surprise that all of this can take quite a bit of time—years even—to sort out.

None of these side effects of a will or trust contest are desirable for your beneficiaries, so it’s likely something you’ll want to try to avoid.

Enter the no-contest clause.

What Does a No-Contest Clause in a Will Do?

A no-contest will clause uses the threat of no inheritance at all—even what is bequeathed to the person within the document—to dissuade beneficiaries from challenging the validity of a will.

A sample no-contest clause in a will looks something like this:

“Notwithstanding anything herein to the contrary, if any beneficiary contests the terms of this Will, including, without limitation, filing a contest of admission of this Will to probate under [applicable section of the state Probate Code], that beneficiary shall not be entitled to any property under the terms of this Will, and for all purposes of this Will, that beneficiary shall then be deemed to have predeceased me.”

A no-contest clause in a trust would contain similar language, but remember that your state may have specific requirements, so it’s always best to consult a professional when incorporating legal language into your will or trust.

Pros and Cons of No-Contest Will Clauses

The main “pro” to including a no-contest clause is that it often does effectively deter beneficiaries from bringing a legal challenge to the will. On the flip side, however, if there actually were any errors in the will or trust, the existence of the no-contest clause leaves no recourse for that beneficiary.

Something else to keep in mind is that a no-contest clause doesn’t automatically mean there will be no issues or disagreements over the estate. One big caveat, for example, is that some states actually allow a beneficiary to bring a will contest—even in the presence of a no-contest clause—so long as she has probable cause to do so. And some states, such as Florida, will not enforce no-contest clauses at all.

Another important limitation of no-contest clauses is that they don’t apply to a person who is not a named beneficiary in the will. That is, even if there is a no-contest clause, a person omitted from the will who brings a contest will have no fear of repercussions of non-inheritance. He or she simply isn’t covered by the clause.

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How to Ensure Your Estate Plan Is Executed Properly

How to Ensure Your Estate Plan Is Executed Properly

by Brette Sember, Esq.

Jun 2016

You’ve completed a will or living trust because planning your estate is important to you, but have you done everything necessary to make sure your documents are legal? Some people start preparing the documents but can’t quite finish.

Your estate plan won’t do what you want it to do if you don’t take all the steps necessary to make sure it will go into effect when you need it to. Don’t leave your heirs hanging!

Making the Tough Decisions

One of hardest parts about creating a will or living trust is deciding how you’re going to distribute your assets. This can be a very emotional decision for some people. Once you’ve worked through this, completing your estate plan can become much easier.

Completing Your Will

You’ve decided who’s in and who’s out. You’ve divvied up your belongings, but you’re not done yet!

To make sure your will is valid, it’s a good idea to complete a self-proving affidavit if your state allows it. This is signed in front of a notary and is attached to the will, basically swearing that you meet your state’s requirements to complete a will.

Signing Your Life Away

Your will is not valid until it is signed in front of two witnesses. You’ll sign the will while the witnesses watch and then ask the witnesses to sign as well. This is a crucial step, because a will that is signed without witnesses is generally not valid.

Storage Matters

It’s important that the completed will is kept in a safe place because it does you no good to have a will that no one can find after your death. Your home safe can be a good place. Your attorney also can keep the will. Make sure your beneficiaries and family know that you have a will and where to locate it.

Completing a Living Trust

Your living trust allows you to use your assets during your life and control their distribution after your death when your successor trustee takes over. After you complete and sign your trust document, there is more work to be done. Your trust is not functional until you actually transfer your assets into it, which is called funding the trust.

This means you will need to change legal ownership of every asset you want to place into the trust, including bank accounts, real estate, investments, and more. These assets will now be owned by “(Your Name), Trustee of the (Your Name) Living Trust.”

An additional document you may need is a Certificate of Trust. This is basically a summary of the trust that you can use to show that the trust exists and how title to trust assets is to be held.

Transferring Assets to Your Trust

Follow these steps to transfer assets to your living trust:

  • Transfer real estate with a quitclaim deed, and also change your homeowner’s insurance to reflect the name change.
  • To transfer bank accounts and investments, you will need to complete a form from the financial institution and will likely need to provide a Certificate of Trust as proof of the trust’s existence.
  • You should create a list of the assets that you want to transfer into the trust, including personal property, such as jewelry and furniture, and attach this as a property schedule to the trust., indicating that ownership of these items is being transferred to the trust. Also, prepare and sign a document assigning the property to the trust.

Managing Your Trust

It’s important to stay on top of your trust. As you buy things, be sure to do so in the name of the trust and to update the property schedule. It is also a good idea to create a simple will (called a pour-over will) that will take anything you’ve forgotten and transfer it to your trust when you die.

Carefully completing your estate plan will keep things organized and give you greater peace of mind.

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Special Needs Trusts

Special Needs Trusts

A special needs trust, sometimes called a supplemental needs trust, holds assets for the benefit of a person, under the age of 65, who has been determined to be disabled by the Social Security Administration. These trusts shelter assets so that they are not considered when the person qualifies for need-based governmental benefits, such as Medicaid or Supplemental Security Income from the Social Security Administration. Assets held in a special needs trust are meant to supplement these government benefits. For instance, trust assets may be used for medical expenses above and beyond what is covered by government benefits, transportation and other necessary expenses. The assets are managed by a trustee, who usually pays trust assets directly to the providers of goods and services for the benefit of the disabled beneficiary.

Creating a Special Needs Trust

To leave a disabled loved one an inheritance, a parent or other family member will often create a special needs trust in his will. The will can simply state that if a beneficiary is deemed disabled at the time of the testator’s death, assets will go into a special needs trust This provision of the will names a trustee and lists the terms of the trust, the same as for a standard trust document. In this case, any inheritance is paid directly to the trust, and not to the disabled beneficiary.

Self-Settled Special Needs Trusts

If a disabled person receives an inheritance outright and he is under age 65, he can use the inherited funds to establish a self-settled special needs trust. It is called self-settled because the trust is funded with the disabled individual’s own money. The trust is still managed by a trustee, and the trustee can make direct payments to the providers of goods and services. Although created with the disabled person’s inheritance, the trust is established by a parent, grandparent, guardian or the court on that person’s behalf. A self-settled special need trust usually contains a pay-back provision to the effect that the state will be repaid for Medicaid costs expended for the beneficiary’s benefit upon his death.

Pooled Trusts

If a disabled person is over age 65, he may have the option to put his inheritance into a pooled trust. This is a trust managed by a non-profit organization for the benefit of a large group of people. Generally, there is no pay-back provision with this type of trust. Upon the beneficiary’s death, the money remains in the pooled trust for the benefit of the surviving members of the group. Medicaid laws change often, and, in some states, transfers to a pooled trust can affect Medicaid eligibility. Consult an estate panning attorney for the laws in your state.