Personal Finance

Clauses Aimed at Keeping the Heirs Quiet

Deborah L. Jacobs|The New York Times

To deter lawsuits, many estate plans include a no-contest clause, which provides that anyone who formally challenges the plan gets nothing. Brooke Astor, the New York philanthropist, had one in her will. Michael Jackson reportedly used one in his living trust, a private document that disposed of most of his assets.

While some lawyers recommend the clauses for all wills and living trusts, others include them only when they see red flags for disputes, as when a parent favors one child over others or when there are tensions between someone’s spouse and children from an earlier marriage.

These clauses are becoming more important as people live longer, said Dana G. Fitzsimons Jr., a lawyer with McGuireWoods in Richmond, Va., who handles will contests. The decline in mental faculties that sometimes accompanies old age and the reliance on one child as caretaker are common patterns in court cases, he said.

The provisions that rein in lawsuits by disappointed heirs are known in legal jargon as “in terrorem” clauses, and that Latin term is certainly apt. They threaten to disinherit anyone who sues — for example, asserting that there was some impropriety surrounding the will.

With or without such a clause, if a will is found to be invalid, assets are distributed according to the terms of a previous will or state law, depending on the circumstances, said Howard M. Zaritsky, a lawyer in Rapidan, Va. With a no-contest clause, those who lose a case to have the will thrown out, or bring one on lesser grounds, forfeit what they otherwise would have received.

After Michael Jackson’s death, questions arose about whether his mother, Katherine Jackson, would lose her 40 percent share of the trust assets if she opposed the people named as executors in his will. Ms. Jackson applied to California’s Superior Court for a ruling on this limited issue, as state law permitted her to do. Judge Mitchell Beckloff ruled that she could challenge the executors’ authority without running afoul of the no-contest clause.

A common misconception is that a no-contest clause can turn back heirs who have been disinherited. But the clause has no teeth if they have been left nothing, because “there’s no downside to contesting the plan,” said Paul N. Frimmer, a lawyer with Irell & Manella in Los Angeles. He recommends leaving disfavored heirs enough money so that they will not risk bringing a case.

Although no-contest clauses are usually aimed at relatives, the one in Mrs. Astor’s 2002 will specifically refers to any “entity” — clearly meant to dissuade the charities named in the document from challenging it, said Lisa M. Stern, a lawyer with Proskauer Rose in New York. A 2003 codicil, or amendment, to the will reduced the charities’ share of the estate. But if they participate in a will contest, now expected in Westchester County Surrogate’s Court, and the case fails, they risk getting nothing, Ms. Stern said.

(The fate of Mrs. Astor’s estate has been complicated by the recent conviction of her son, Anthony D. Marshall, and one of her lawyers, Francis X. Morrissey Jr., on charges that they conspired to steal from her by tricking her into changing her will. This might support the charities’ argument that an earlier version of her will is the valid one. Andrew M. Cuomo, the state attorney general who by law represents charities, is not affected by the no-contest clause.)

Most states permit some form of no-contest clause, but Florida specifically prohibits them. If you sign a will while living in another state and it contains a no-contest clause, and then move to Florida and die there without changing your estate plan, the clause would be invalid for most of your assets, said Julie Ann Garber, a lawyer with the Andersen Firm in Key West. One exception might be real estate owned in the state where you lived previously, she said.

In states that permit no-contest clauses, standards for applying them vary and their wording is subject to interpretation, said Matthew P. Matiasevich, a lawyer with Evans, Latham & Campisi in San Francisco, who represents clients in estate lawsuits.

A classic example involved the will of William Randolph Hearst, the newspaper tycoon who died in 1951. More than half a century later, several relatives who were receiving income from a trust established by the will wanted to sue the trustees for investment decisions that they claimed favored future beneficiaries. Court papers show that in 2005 each current beneficiary was to receive an $8.3 million payout from the trust, financed with a portion of the dividends from Hearst Corporation stock.

In a Dec. 19, 2006, decision, the California Court of Appeal affirmed a 2005 trial court order and found the suit would violate the no-contest clause.

GIVEN the complications that can arise, estate planners said the best defense against will contests was to take steps during life to preserve the peace. For example, rather than leaving relatives guessing about the motives behind your decisions regarding who gets what, you may want to spell out your reasoning in your estate-planning documents — or have a frank discussion beforehand.

Other strategies anticipate the two most common grounds for contesting a will or trust. One is undue influence, which refers to efforts by someone to coerce you to sign estate-planning documents that favor him over others. Another is the argument that you lacked capacity when you signed the document, meaning that you didn’t know what assets you had, what you wanted to do with them and who your relatives were.

When one child plays an active role in caring for an elderly parent, others may worry that their sibling is pressuring the parent for a larger share of the inheritance, and that can lead to a claim of undue influence, Ms. Stern said. In such situations, she asks that the child be out of earshot during phone calls or meetings about estate planning. To document a client’s mental state, lawyers sometimes rely on doctors’ exams and videotapes that show a client signing the document and discussing its contents.

For extreme cases there’s another tactic. It involves setting up barriers to will contests by signing a series of documents, each only slightly different from the one it replaces, over a period of years. Those who want to contest the plan must then have each of these documents found invalid before they get to the one they want to apply. And that can be a daunting task.