Estate Planning Strategies: Using No-Contest Clauses to Prevent Litigation

Following the death of a loved one, family members do not always see eye-to-eye, and underlying conflicts sometimes surface. Friendly family members can often become adversarial during these times, especially when money is involved. Because of this, estate planners must anticipate and mitigate potential disagreements among heirs. An aggrieved heir may file a complaint in court challenging a will or trust or a term or terms therein, regardless of whether they have a factual or legal basis to do so. This can often be expensive and delay the administration of estates, sometimes for years. Even if the end result is exactly what the testator or settlor wanted, the legal fees can amount to thousands of dollars, even for modest estates.

To discourage frivolous litigation from the outset, estate planners often include a no-contest clause. This clause acts as a deterrent by potentially disinheriting beneficiaries whose claims against the estate are denied.

Contesting a Will or Trust

Will or trust contests generally fall into two categories:

The direct attack

A direct attack challenges the validity of the will or trust, or of a term or terms within, based on claims such as forgery, lack of due execution, lack of capacity, duress, fraud, or undue influence.

The collateral attack

On the other hand, collateral attacks do not challenge the instrument directly. These take the form of lawsuits that attempt to frustrate the deceased’s estate plan by interrupting or delaying the administration of the estate or trust. Often, a beneficiary will file a lawsuit against the testator’s probate estate or family members or file for injunctive relief to prevent the trustee from investing in or disposing of certain assets.

Not all actions rise to the level of a contest for purposes of invoking a no-contest clause.  Many states define what constitutes a contest through case law, while others address the issue in their respective versions of the Uniform Trust Code or the Uniform Probate Code (UPC). Ordinarily, a no-contest clause cannot prevent a beneficiary’s exercise of rights in the following circumstances:

• Petition for instructions (even if seeking an adverse interpretation)
• Demand for or challenge to a trustee’s accounting
• Lawsuit to enjoin or redress a breach of trust
• Petition for removal of a trustee for repeated or serious breach of trust
• Petition for removal of a trustee for unfitness
• Lawsuit alleging trustee’s exercise of discretion is an abuse of discretion
• An action to enforce the terms of the will or trust

Enforceability

The enforceability of no-contest clauses varies by state. While Florida explicitly prohibits no-contest clauses, the remaining states allow and enforce them in different ways.  Some states strictly apply the clause, regardless of the contesting beneficiary’s intent or state of mind, and others allow for a probable cause or good faith exception.

Colorado, along with several other states, recognizes the probable cause exception.  See C.R.S. §§ 15-11-517 and 15-12-905.  In essence, this means a no-contest clause will be enforceable unless probable cause exists for challenging the terms of a will or trust.  Colorado case law has 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."

Under this exception, if the litigating beneficiary succeeds, the no-contest clause and the challenged instrument, term, or transfer are unenforceable. If they are unsuccessful, however, the no-contest provision will be upheld and enforced unless the litigating beneficiary can prove that probable cause, as defined above, existed for taking legal action.

Considering a No-Contest Clause

The no-contest clause should be an important talking point in an initial estate planning meeting if the estate planning attorney or client foresees post-death trouble. Factual scenarios that may signal the need to include a no-contest clause include, but are not limited to, the following:

• The client wants to make sudden and significant estate planning changes
• The client desires to disinherit a child or children, perhaps in favor of a charity, nonfamily, friends, children of a previous marriage, or a new spouse or partner
• Unequal treatment of children
• Imposition of excessive restrictions on bequests
• Elderly or disabled testator
• Unusual behavior of testator
• Beneficiaries with dependency or addiction issues
• Litigious family members
• Dishonest family members
• Estranged children
• Multiple marriages and/or children from multiple marriages

If you are interested in learning more about how Jorgensen, Brownell & Pepin, P.C. may assist with your Estate Planning needs, contact us at either 303-678-0560 or 970-304-0075 to discuss your case further.

This blog is intended to provide general information and should not be treated as legal advice. You should contact a qualified attorney for questions about legal issues.