Sometimes clients worry that there will be conflict after they die. They worry that the family member they disinherited will cause trouble and contest their will or trust. It is important to them that their estate plan is unbreakable. They want to make sure that no one can file a lawsuit or change the plan after their death. Clients often think the solution is a “no contest” clause (a/k/a an in terrorem clause). Sometimes a no contest clause is appropriate, but these clauses don’t work the way most people think they do.
What is a no contest clause?
Basically, a no contest clause is a clause in your estate plan that states that a devisee or beneficiary who challenges the validity or effect of your will or trust is disinherited. Sometimes, the clause also states that the issue of the person who contests are also disinherited. The purpose of these clauses is to dissuade a person from contesting the estate plan for fear of receiving nothing.
A common misconception
A common misconception about no contest clauses is that they prevent someone from filing a lawsuit altogether. A no contest clause does not prohibit anyone from filing a lawsuit or asserting that the estate plan is invalid. The clause might dissuade someone from contesting for fear of losing their inheritance, but it doesn’t actually ban someone from filing a suit.
There are a couple of other key times where a no contest clause does not work the way the clients think it will. These include when someone is already disinherited and when probable cause to contest exists.
When there was probable cause to contest
Many states have state laws that disfavor no-contest clauses when there is at least some basis to believe the will is invalid. In Arizona, pursuant to A.R.S. Section 14-2517 and A.R.S. Section 14-10113 a provision in a will or trust “purporting to penalize an interested person for contesting” the will or trust “or instituting other proceedings or actions relating to the estate is unenforceable if probable cause exists for the contest, proceedings or actions.”
What is probable cause in this context? In In Re Estate of Stewart, the Arizona Supreme Court defined “probable cause” as “the existence, at the time of the initiation of the proceeding, of evidence which would lead a reasonable person, properly informed and advised, to conclude that there is a substantial likelihood that the contest or attack will be successful.”
When someone is already disinherited
The no contest clause dissuades people from contesting by jeopardizing their ability to collect the inheritance they are entitled to. If someone isn’t entitled to any inheritance by the terms of the estate plan, that person has nothing to lose.
Does that mean that you should leave a family member you would like to disinherit a dollar? No. A dollar likely won’t be enough to dissuade anyone from contesting. After all, they would only lose a dollar and now that they are a beneficiary, they are entitled to things like notice. How much is enough to dissuade someone from contesting? One thousand dollars? Ten thousand dollars? One hundred thousand dollars? It depends on the person and how much they would receive if the contest is successful. If you truly don’t want someone to receive anything, the best thing you can do is expressly omit them in your estate plan.
When do they make sense
No contest clauses do have their place in an estate plan. The times when they are often most effective is when you are leaving a family member a substantial share of the estate, but not as much as they would expect to receive as an heir. For example, let’s say you have two children, and you leave one 40% and the other 60% of your estate. Even with a no-contest clause in the will or trust, the child receiving less can still contest the will. But, she might be dissuaded from contesting because (if there is no finding of probable cause), she would lose her entire inheritance. A no-contest clause may be helpful if you are making unequal gifts that your beneficiaries may deem unfair.
