Everyone wants their last wishes respected. Well, really, everyone wants all their wishes respected, but those final demands that someone weighed with enough care to put in a will, trust or estate plan are special.
But once you’re gone, how can you stop an heir from legally challenging your last wishes? One answer is by using an “in terrorem” clause, which is a legal device that is designed to disinherit someone if they challenge your bequests. Incidentally, it means “in terror” in Latin, which everyone who went to law school loves to translate but calling it a “no contest clause” is closer to how it functions.
This seems like it could be a pretty good breakfront to stop quibbling relatives from tying up your estate in court for years with a lot of he said/she said arguments. And in the right place at the right time, it can be effective.
The Unger Company is aware that many jurisdictions do not like the clause. For instance, if you are a resident of Florida or Indiana, a probate court will not recognize an in terrorem clause. In Florida, Title 42, Chapter 732 specifically states that a “provision in a will purporting to penalize any interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable.” Indiana’s Title 30 Chapter 2.1 says basically the same thing.
While the legislatures in Florida and Indiana can’t really see a good reason to broadly prevent people from challenging the distributions in a will or trust, other states have very different opinions and require different burdens of proof or evidence for an heir to challenge a wealth transfer plan. Good reasons could involve late amendments, possible duress, or mental incapacity that led to amendments to an existing wealth transfer plan or an entirely new estate plan to have been drafted to supersede an earlier version. Depending on whether you are in Arizona, Colorado, Michigan, Minnesota, New Jersey, Arkansas, Illinois, Iowa, North Carolina or Tennessee, there are different standards involving probable cause, good faith or just cause apply to anyone wishing to challenge the no contest clause in a wealth transfer plan. Regulations get murkier when you look at Alabama, California, Delaware, Missouri, New Hampshire, New York or Vermont. In all states but one the same rules apply to trusts and estates. The exception is Alaska, which has different rules for trusts and estates. Talk about wanting to be as unique as a snowflake!
There are other techniques that can be cleverly used that could sidestep some of the issues that a probate court could have with an in terrorem clause. As national estate tax planning experts, not local estate counsels, The Unger Company is positioned to serve as a resource to a client’s estate attorney in building and implementing optimal solutions. For us, it doesn’t matter if you’re in New York, Florida, California or Wisconsin – our solutions work everywhere.
The Unger Company, Ltd. has distinguished itself as one of the foremost firms in building elegant and effective estate tax plans for the high-net-worth classes. The firm was founded by Harold Unger in 1974 and brings uncommon experience and know-how to this highly specialized topic. Contact us through our website or call us at 212-755-4777 to learn more about how we can help you.
Harold Unger LinkedIn: https://www.linkedin.com/in/harold-m-unger-9453aa73/
The Unger Company Ltd. LinkedIn: https://www.linkedin.com/company/93617123/
The Unger Company, Ltd. does not seek to practice law for clients and these published items are intended only to be informational in nature.