Trust Contests & Challenges

Many of my clients are concerned that someone may contest the terms of their estate plan. In California a law was passed that greatly restricted the enforceability of no contest clauses. The fact of the matter is that no estate plan is bullet proof from contests, but this newsletter will discuss some simple things one can do in order to prevent contests.

Limits on the Ability of Courts to Enforce No Contest Clauses

California law only allows courts to enforce no contest clauses in most instances if a direct contest was brought without probable cause. It further defines “direct contest” as a pleading alleging the invalidity of the trust or will on the grounds of forgery, failure to validly sign, lack of capacity, fraud or undue influence, and several other technical defects. Whatever the challenge to ones estate plan, it is best try and prevent it.

How Can You Prevent an Heir From Contesting Your Estate Plan?
My advice to my clients has always been to make sure you take into consideration relationships when drafting an estate plan. First of all, choose successor trustees and executors who can be and will be trusted by all heirs. Second, share your estate plan and reasoning for it with all of your heirs. The fewer surprises, the less likely there will be a challenge. Or, third, if you do not feel comfortable sharing your estate plan with your heirs before your death, draft letters to your heirs to be distributed upon your death that explain the reasoning behind your decisions regarding choice of successor trustee/executor and how your estate is distributed. Finally, if you are extremely concerned about a contest consider having the signing of your documents video taped and include an explanation of your decisions on the tape.

Avoiding Conflict, “the Power of Appointment Bribe.

“A power of appointment bribe is a possible device to discourage litigation if the client fears a contest. One can give a trusted friend a discretionary power of appointment over a portion of their estate and instruct that friend how to use the power of appointment. Example. Suppose that a client wants to leave 50% of his estate to one child and 50% to be divided amongst the other three children based on need. The client is concerned that the three children with lesser devises will challenge his Trust. The client’s Trust can give a trusted friend a power to appoint to the three children 50% of his estate or the power appoint to a charity 50% of his estate and express that it is the client’s wish that the power holder exercise the power to minimize conflict and trust expense. The power holder then has the power to give 50% to charity if the three children bring a challenge to the Trust. There are risks to this type of device. The power holder is under no legal obligation to follow the client’s wishes and if the children still contest the Trust and succeed, the Trust can be declared invalid and intestate law would apply.

If you have any concerns regarding a challenge to your estate plan, contact Jane K. Penhaligen.