Preventing Problems in Estate Planning

When you make a will or trust, you are not obligated to leave property to anyone. In order to discourage disappointed heirs from disputing your estate plan, you can include a “no-contest” provision that automatically cancels an heir’s inheritance if he or she challenges the distribution of your assets in any way. The original reasoning for the no-contest provision was to intimidate any heir who may consider contesting a will or trust, thereby securing his or her cooperation.

“No-contest” clauses can be broad or narrow, and may even disinherit people who challenge transfers made outside your will (through a trust or beneficiary designation).

Of course, you cannot make a bequest of property you don’t own, but you can often provide in a will that a beneficiary will only receive your bequest if they abandon their rights in some other property. In a recent case, a court was asked to decide whether a refusal to abandon such rights would constitute a “will contest” that would void other gifts. When a testator died, he left a complex estate plan that included a will, a trust, and beneficiary designations for his retirement account. The testator’s wife legally owned part of his retirement account and other “community property.” The testator’s will and trust required his wife to abandon her “community property” rights in order to receive benefits worth $2.65 million from her husband’s trust.

The wife filed a special petition with the court, asking whether she would be viewed as “contesting” the estate plan if she sought to enforce her community property rights. The wife claimed that her husband had mistakenly transferred some community assets to his own trust, and she was merely trying to correct the mistake. On appeal, the Court ruled that the wife’s challenges would constitute a “contest.” Therefore, she had to decide whether to assert her “community property” rights (and thus receive only her share of community property, and nothing from her husband’s trust) or simply accept the provisions of the trust and will (thus sacrificing her “community property” rights).

This case illustrates an important issue. If you make a mistake in your estate plan, a “no-contest” clause in a will or trust may prevent your heirs from correcting the mistake. On the other hand, if you don’t include a “no-contest” clause, an heir might contest your estate plan, thus delaying the distribution of your assets, and frustrating your goals. There are many such issues with Estate Planning that require careful planning and expertise to avoid.

In most cases, a “no-contest” clause does make sense.  However, as the example in this article illustrates, you want to be careful when doing your estate plan in order to avoid unnecessary problems for your heirs.  Seeking competent advice is, more often than not, well worth the price paid.

WITH A SATELLITE OFFICE NOW IN PANGUITCH. Jeffery J. McKenna is a local attorney serving clients in Utah, Nevada, and Arizona. He is a shareholder at the law firm of Barney McKenna and Olmstead.  He is a founding member and former President of the Southern Utah Estate Planning Council. If you have questions regarding this article or if you have a topic you wish to have addressed in this column, you can call 435 628-1711.

 

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