Financial Advice for Retirement, Social Security, IRAs and Estate Planning

Bullet Proofing Your Estate Plan

Last update on: Apr 02 2019
bulletproof-estate-plan

Few events disrupt an estate plan and family harmony more than a will contest or other challenge to the plan. The specific challenges might not be predictable, because they often are triggered more by emotions than finances. But the risk of a contest almost always is present, and estate owners should know that they can be prevented or their effects minimized with a little planning.

Of course, a contest is likely if children are left unequal shares of the estate and are not told about this in advance. Leaving a child property in a trust instead of outright could cause trigger a contest. Cutting an adult child out of the will naturally can cause a challenge. Contests are common when significant assets are left to someone outside the immediate family, especially to a mistress or to a second spouse instead of the children from the first marriage. Even the division of modest personal assets can cause problems, as we discussed in last month’s visit.

Every estate plan should anticipate a contest or challenge. Even modest estates trigger battles, and those battles can devour both the estate and the family. A few simple measures can convince a potential challenger that there is minimal chance of success and the effort is not worth while. These measures increase the probability the estate plan will survive intact. Here are some steps to consider to bullet proof your estate plan.

  • States often restrict the ability to cut a spouse out of a will or leave a limited share. Without a prenuptial or postnuptial agreement, a spouse often must be left a minimum share of the estate. Otherwise, it is legal to exclude a prospective heir or heirs from the will or to favor one heir over others, even when they are siblings. No reason has to be given for the choices, but sometimes a challenge can be defeated by giving reasons for an exclusion or disproportionate distribution.
  • A common ground for challenging a will is that someone exerted undue influence when the will was drafted. To avoid that charge, do not include a favored heir or heirs in the Estate Planning process. Do not take a favored heir to meetings with estate planners or discuss estate planning options alone with that heir. It is best to avoid using an attorney or other estate planning professional who was recommended by or has a relationship with a favored heir. In general, be sensitive to relationships that might be considered unduly influential to outsiders.
  • The other common ground to challenge a will is that the testator did not have the mental capacity to make a valid will. Often, anecdotes are the only evidence to reveal the testator’s possession of or lack of capacity. It is better to lay the groundwork to defeat a change of lack of capacity during the estate planning process.Even a person with dementia can have sufficient mental capacity to make a will. The person must be lucid for periods and have the capacity to understand the assets and issue and remember the potential heirs at the time the will is signed. These conditions can be established through a professional evaluation or affidavits from people who were around the testator at the time of the will’s signing.

    Many estate planners routinely make a video recording of the will signing with the attorney present. The video includes the attorney asking the testator the reasons for the will’s key provisions. In response to the attorney’s questions, the testator asserts that he understands the provisions and might give a brief explanation of them. A recording can convince unhappy heirs a challenge would not be successful. Of course, it is important that the testator not appear confused, “out of it,” or tired in the recording.

  • The classic way to avoid a challenge is to include a no-contest clause in the will. The no-contest clause works if no one is completely excluded from the will. Instead, the unfavored heir should be left an amount that would be meaningful to him or her but still is far less than expected and not a significant portion of the estate. The will then has a no-contest clause stating that anyone who loses a challenge to the terms of the will also loses anything he or she was entitled to receive under the will. The heir then has to put at risk both the inheritance and the legal fees that would be incurred in the challenge.
  • Multiple wills can be effective for someone with the time and money to execute the strategy.
    The basic rule is that when a will is successfully challenged, the previous will is effective unless it, too, is successfully challenged. A strategy is to write a will, and then execute a new will with a minor change or two. Over time layers of wills can be executed in this manner. The basic estate plan is unchanged; only relatively minor matters change. An unhappy heir has to successfully challenge all the wills to claim a larger inheritance.
  • Avoiding probate also avoids will contests. Asset transfers avoid probate in several ways. Life insurance benefits and annuities pass by terms of the contracts and avoid probate. Jointly-owned property avoids probate. Retirement plan benefits avoid probate. Most importantly, assets held in living trusts pass by the terms of the trust and are not included in the probate estate.Challenging a revocable living trust is difficult. The heir first has to learn of the trust and its terms. In many states, there is not much law on challenging a trust, and the law makes it difficult to challenge the terms of a trust, especially if one is not a beneficiary named in the trust agreement. In states with high probate costs and long processes, living trusts are the preferred way of passing assets. Reducing a challenge to the distribution of the estate is another incentive to use a living trust.
  • Communication can be a key to avoiding will contests. Surprise is considered to be a major reason potential heirs challenge wills. They learn of the will terms for the first time at the will reading or later and are surprised. The only response available to them is to challenge the will.It is not a good idea to pass around a will ahead of time. That is too much communication. There is no need for the heirs to know every detail, and the will would need to be recirculated every time any change is made. But surprises and the anger they generate can be avoided if a brief explanation of the will terms and the reasons for them are made to those who might have an expectation that is different from the actual plan. The notice gives the individual an opportunity to absorb the information, ask questions, and perhaps make a case for change. Notice also makes it possible for the individual to accept the terms and reconcile with the others involved.

All types of litigation are on the rise, including will contests. It doesn’t take much to lay the groundwork to make a will contest unlikely. Every estate owner should consider taking steps to prevent a challenge.

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