Putting No-Contest in Context: When No-Contest Clauses Are Enforced in Wills
When most people hear about a Will contest, they think about angry family members who are upset with the content of their parent’s Will, which potentially resulted in an unequal division of the estate. In such situations, potential issues typically include situations such that one person receives a larger share, or one person receives all or most of the jewelry, or a person was named Executor who was not a trustworthy person. All of these things can happen, but they rarely do.
In handling an estate, there are many things to do, and these can be broken down into two main stages. The first stage is submitting the Will to Court and having the Court appoint an Executor. The second stage is distributing the assets of the estate. The first stage is when most people think about the Will contest; however, in my experience, most Will contests are not lawsuits about whether the Will was fair. What I have seen is that most litigation occurs during the second stage, the distribution of assets.
During the second stage, it is important for an Executor to gather the assets of the estate before making any distributions. First, the bills of the estate should be paid, since the Executor is personally responsible if they are not paid. Additionally, it is difficult to determine the size of each beneficiary’s share until the Executor knows the full size of the estate. It is during the second step of this stage, when the assets are allocated to the beneficiaries, that a second lawsuit is possible.
For example, if an estate had $1,000,000, and was divided into two equal shares, most beneficiaries would expect to get $500,000 each. However, if the main asset was a home, there would be costs in selling the home (broker’s fees, transfer taxes, among others), which would reduce the size of the estate. Other expenses which would reduce an estate could include funeral expenses, legal fees, income taxes, accountant’s fees, and paying outstanding credit card bills. Therefore, there would not be $1,000,000 to distribute. When it comes time to distribute the assets, if a beneficiary was told their share was $450,000, then he or she could decide to initiate a lawsuit – this type of lawsuit is called an Accounting. The term has nothing to do with an Accountant. Rather, the word comes from the actions of the Executor, when he or she accounts for the assets of the estate.
In order to avoid these types of lawsuits, some people add no contest clauses to their Wills, which typically state that if a beneficiary contests the Will, then he or she would forfeit their inheritance. But in practice, this only works in the first stage listed above. What most people do not realize is that Courts do not enforce no contest clauses in Accountings. In a recent case of mine, a party sought to enforce a no contest clause in an Accounting proceeding. The beneficiary claimed that certain property was mismanaged, that the distributions were not calculated properly, and that the property was not valued correctly. The Judge denied the request to enforce the clause, and stated that objecting to the valuation and manner of distributions, which relate to management and administration of the estate, cannot trigger a no-contest clause.
In summary, to add a no-contest clause in your Will is helpful to keep someone from challenging your selection of Executor. However, the clause does not work when trying to stop an Accounting from being adjudicated.
This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact Jeffrey Blankstein who counsels clients on estate and retirement planning, individual taxation, real estate and litigation. Mr. Blankstein is admitted to practice law in New York.