No-contest clauses: leaving beneficiaries in terror
The concept appeals to the old adage that "a bird in the hand is worth two in the bush."
Imagine that you have two wonderful sweet daughters and a third daughter who has been terrible to you, ungrateful and wasteful of all of the money that you have advanced her. So, you draft your will to leave everything to the first two daughters and nothing to daughter No. 3.
Further picture that your will has a no-contest clause stating that anyone who challenges your will gets nothing. Daughter No. 3 is outraged when, upon your death, she learns what has happened, and decides to go to a lawyer for help and advice about contesting the will.
The lawyer will tell her to go ahead and sue because if she loses she will get nothing, which is the same amount she is already getting under the will. If she wins, she will take her intestate share.
Essentially, she has nothing to lose in a will contest, beyond legal fees.
To be effective, the no-contest clause must put devilish daughter No. 3 in fear of losing something. And the bigger the potential award if the will is invalidated, the larger the bequest must be for the no-contest clause to have its intended effect.
A sample no-contest clause might express the testator's, i.e., the will writer's, desire that his or her estate be settled as quickly as possible and without disagreement over the gifts made in the will. It also frequently provides that if a specific beneficiary — or any beneficiary — under the will directly or indirectly contests a provision of the will, then the gift made to that person under the will should be distributed as if he or she had predeceased the testator.
Many testators wish to disinherit one or more people in their wills. However, explicit disinheritance may not be the best way to accomplish the goal of making a statement while keeping the scheme of disposition intact.
Anyone who would take a share if the will were invalidated may contest a will. Forgery, lack of due execution or capacity, duress, fraud and undue influence are some of the common grounds for contesting a will or trust.
Those who are angered by a particular gifting plan and who are left nothing in a will have zero to lose by contesting it. A no-contest clause will have very little potency unless the testator is agreeable to making a fairly significant bequest to the prospective contestant.
Such a "baited" no-contest clause puts a potential troublemaker in a bit of a Catch-22. He or she has the choice of taking a guaranteed, but lesser, gift, or risking it all by challenging the will for the chance at a larger share.
Near disinheritance is not the only object of no-contest clauses. Another potential aim is to discourage beneficiaries from instigating expensive litigation against the will. This deterrence effect helps to preserve the estate and the testator's wishes.
No-contest clauses can also help prevent litigation-related disputes among family and friends of the decedent and avoid the airing of the family's dirty laundry in court. All of that can be avoided with a simple will provision.
There are also disadvantages to no-contest clauses. A major one is that they might discourage proceedings that could actually protect the testator and his or her true wishes. For example, enforcing a no-contest clause might hinder a lawsuit that would show the testator's lack of capacity, thereby invalidating the safeguard built into the disposition of property by will.
The foregoing is mitigated somewhat by the fact that the majority of courts will not enforce a no-contest clause if there is probable cause to bring a contest. This reduces the risk to the contestant of bringing a claim if he or she has a colorable basis for doing so. Many courts also narrowly construe no-contest clauses to limit their impact.
Most — but not all — jurisdictions, in the absence of a legitimate ground for contesting the disposition, will uphold no-contest clauses. Michigan law provides that "(a) provision in a will purporting to penalize an interested person for contesting the will … is unenforceable if probable cause exists for instituting proceedings."
Who knew words alone could be so terrifying?
Note: This column originally appeared in the Nov. 7, 2011, Business Journal and was written by Anne Zygadlo, a former summer intern with the law firm of Varnum LLP.