If you anticipate the probability of someone challenging the validity of your Trust and/or Will, what can you do? For example, you desire to disinherit or greatly reduce the inheritance of a child, but you believe if you do so, the child will almost certainly challenge the validity of the Trust and Will in a Court of law. There are a number of preventive things you can do, but one of the most common estate planning tools in this situation is a “no contest clause”. A no contest clause is a provision in a Trust and Will that essentially provides that anyone challenging the validity of the terms of the Trust and Will shall be disinherited and shall receive nothing. Nevada Courts recognize the validity of a no contest clause; however, Nevada Courts, as Courts in most states, will not enforce a no contest clause if the Court finds that the challenge was made in good faith based on probable cause. The Court realizes that there will be cases where in fact there are legitimate challenges questioning whether the person making the Trust and Will had the ability (testamentary capacity) to do so, whether the person was under the undue influence of someone at the time, et cetera.
You should always state in the Trust or Will that you are intentionally omitting a person as a beneficiary if that person is someone who would be considered a natural object of your bounty such as a child. However, it is usually not a good idea to explain why you are disinheriting or reducing the share of the person in the provisions of the Trust or Will. An example would be to state that the person uses or is addicted to illicit drugs or is addicted to gambling. This opens the door to the argument that the person was not using or addicted to illicit drugs or addicted to gambling and that you made the Trust or Will based on this incorrect belief (often referred to as an “insane delusion”), or the argument that the person is no longer using or addicted to illicit drugs or gambling at the time of your death, or similar arguments.
One thing to keep in mind is the old axiom that “greed can be a wonderful thing” in certain situations. Needless to say, someone who is completely disinherited has nothing to lose in challenging the validity of a Trust or Will. On the other hand, a person who is left something, even if minimal, under the terms of the Trust or Will potentially can lose it all in bringing a Court challenge. This, at a minimum, tends to give one pause in bringing such an action.
The attorneys at Jeffrey Burr Law Office have many years of experience in not only planning your estate in this situation, but also in upholding your wishes as expressed in your Trust and Will once you are gone.
With the current uncertainty on the estate tax front, some people feel frozen in place in their estate planning. But regardless of the outcome of estate taxes, there are many other issues that we want our clients to be aware of and which have very little to do with how the estate tax law finally settles out. Following is a list of important factors in your estate planning which may require changes in your existing plan. We recommend you keep this list handy so as life changes, you will know your estate plan must be modified to best deal with changing circumstances.
1. Estate taxes are important, but minimization of taxes should not be the driving factor in any plan.
2. Has your net worth changed significantly since your last meeting with your advisor?
3. Are your documents up to date for changes in your current health status? As clients age, they may want to consider adding a capable family member or friend as a co-trustee. Is everything in place to deal with coming incapacity or known illness?
4. Have your ideas changed with regard to leaving some of your estate for charitable purposes? Have your favored charities changed?
5. Do you have any heirs or potential heirs who have disabilities or handicaps? Are you sure your plan will not negatively impact any benefits they may be receiving? Even a small inheritance can upset a person’s benefits.
6. For our clients who have moved out of Nevada, although your trust and will are valid in any state, we recommend that you have health and asset powers of attorney which comply with the law in your primary state of residence. We have health power of attorney forms for some states; for other states we recommend you contact a local attorney to get the most up to date forms.
7. Have there been marriages or divorces among any beneficiaries or yourself? Many of our divorced clients have not yet removed ex-spouses from their power of attorney designations. Although a divorce automatically voids any bequest under a will or trust in most cases, it is still good to make sure this is done properly. Also, divorce does not void beneficiary designations of retirement accounts, life insurance and so forth.
8. Does your plan do the best it can to eliminate potential conflicts among heirs? Too often important things, like who inherits family heirlooms, are left to chance, setting up the possibility of expensive and divisive family lawsuits.
9. Has a change in the value of your estate negatively affected the prospects for the surviving spouse? Some plans call for the survivor to make distributions of the estate upon the first death. These distribution requirements may have been reasonable when the plan was first drawn up, but we sometimes see cases where the amounts designated to pass upon the death of the first spouse to die may cause hardship for the surviving spouse.
10. We have many clients these days who wish they had taken advantage years ago of our recommendations to set up an asset protection Nevada onshore trust. These trusts may not protect you from a lawsuit which is threatened or already in progress, but it’s still a good idea to plan for future problems. At least 12 states now have asset protection trust laws, so the concept is gaining more of a following all the time.
11. Have you chosen the correct trustee? Is the son or daughter you have appointed really capable and will they be fair, or does their appointment set up a strong potential for conflict? Perhaps an independent trustee, such as a bank or trust company, would be a safer choice. With all the services provided by banks and trust companies in trust administration, we think they are one of the best bargains around.
12. Have you designated your beneficiaries of retirement accounts properly, e.g. for IRA’s, qualified plans, deferred compensation, etc? These assets form a large part of many estates and it is vital that beneficiary designations be done properly.
13. Are your assets properly assigned to your trust?
Estate planning is not static; it is a dynamic process. Pay attention to changes in family circumstances and be sure to contact your advisor to be sure your plan is set up properly to deal with the changes in life which inevitably come to us all.
"*" indicates required fields