One concern many people have when they set about to plan their estates revolves around a challenge to their wills or trusts after death. One important reason for creating an estate plan is to assert control over the distribution of one’s assets, and a legal challenge undermines that, potentially shifting that control to the courts. A “no contest” clause in your will or trust may offer a degree of protection, but these provisions come with certain legal limitations of which you should be aware.
The law recognizes several grounds for legal challenges of a will or trust. Many common grounds may include claiming that: the document was not properly drafted, signed, or witnessed, you lacked the proper testamentary capacity (in other words, were mentally incompetent) when you signed, or another person executed undue influence over you when you executed the document.
A “no contest” clause, which is sometimes referred to as a “penalty clause” or by the Latin name “in terrorism”, is a provision inserted within a will or trust that threatens to eliminate the distribution of any beneficiary who mounts a legal challenge to that legal document. These clauses offer a measure of protection against a will or trust challenge launched strictly out of spite and lacking any reasonable legal or factual basis. Perhaps you have a relative whom you believe may be dissatisfied with the size of his/her distribution. In this case, a penalty clause may protect your estate by discouraging your potentially unhappy beneficiary from launching a flimsy challenge.
Be aware, though, that penalty clauses do not provide ironclad protection in all situations. Wis. Stat. 854.19 spells out the limitations on enforcing penalty clauses. Wisconsin is among a group of 27 states that prohibits enforcing penalty clauses if the person initiating the challenge had probable cause. In other words, if a court believes that the person challenging your will or trust had a reasonable basis for believing that your document was not properly executed, that you were incompetent, or that you were under undue influence, then it will not enforce the clause and will not eliminate that beneficiary’s distribution, even if the court rules against that beneficiary on the underlying challenge.
Generally, the level of probable cause needed to render a penalty clause unenforceable is quite low, so most courts will declare a penalty clause unenforceable in most situations. Nevertheless, these clauses may offer a measure of protection if you fear that a beneficiary might be so disgruntled as to undertake a completely frivolous court challenge. As a result, a penalty clause may still offer value to some people. To discuss the merits of penalty clauses, and whether including one in your estate plan makes sense, talk to Madison estate planning attorney Daniel J. Krause of Krause Donovan Estate Law Partners, LLC. He has extensive experience with crafting a wide range of provisions for wills and trusts and can advise you know about how to craft your estate plan. Contact Attorney Daniel J. Krause today.
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