Will Your Will be Challenged by a Beneficiary? Creating an “In Terrorem” Clause in Your Estate Plan
By Jeffery Levine, IRA Technical Expert
Follow Me on Twitter: @IRAGuru4EdSlott
Creating an estate plan can be a very challenging process. For starters, it involves serious contemplation of on’’s death and the resulting aftermath, which can, in and of itself, be an uneasy topic of discussion. In some cases, however, the process can be particularly emotional and technically challenging. Oftentimes this occurs when someone chooses, for one reason or another, to treat children or other similar beneficiaries unequally, perhaps even disinheriting one or more of them.
An unfortunate side effect of such action, however, is that it may increase the likelihood of your will being challenged. That could lead to any number of problems, including unnecessary legal costs, probate assets not being available to your intended beneficiaries in a timely manner and, perhaps most importantly, your final wishes going unfulfilled. So if you think your final wishes might ruffle some feathers, so to speak, what can you do?
Well, one thing you can do is to try and structure your will in such a way that it encourages people not to challenge it. There are a number of ways to do this, but one possible solution is to include what’s called a “in terrorem,” or “no contest” clause. The term “in terrorem” comes from the fact that the inclusion of such a provision in your will is supposed to terrify individuals from contesting it. While the exact wording of this clause will vary from state to state, and even from attorney to attorney, it tends to look something like this:
Anyone who is named as a beneficiary of this will and who contests this will shall receive $1, regardless of the outcome.
So how well can including a clause like this in your will actually prevent someone from challenging it? It depends on a number of factors.
For one thing, you have to make it worth a beneficiary’s while not to challenge. That often means not disinheriting them completely, even if that’s what you’d really like to do. Think about it… if you were completely disinherited under someone’s will, how much would that stop you from challenging it? If you did, what’s the worst that could happen? You could end up with nothing, which is right where you started – not counting any legal fees you might incur during the process, of course.
Similarly, if you have an estate of, say, $5,000,000 and you have two children and leave one child $4,995,000 and leave the other $5,000, that $5,000 might not be enough to prevent that child from contesting the will. In their mind, it might be worth risking the $5,000 for a shot at $2,500,000, or whatever they think they might be entitled to in the will. So step one in implementing an effective “in terrorem” clause is to leave a beneficiary enough money so that they think twice – check that, three times – about challenging your will. How much that should be, exactly, depends, among other things, on the total value of your estate, as well as how likely it is that a particular beneficiary would challenge your will.
The effectiveness of this provision varies from state to state. For instance, in some states, the “in terrorem” clause may work pretty much as it sounds and punish a would-be contester regardless of the outcome of their efforts. Other states, however, will refuse to strictly enforce such clauses as a matter of law, if there is “probable cause” for a person to bring the contest. Even in such cases, however, it’s possible that after reading such a clause, a beneficiary will think twice before taking any action.
So if you are really, really worried about someone contesting your will, you may want to choose where you live (and where you die, for that matter) carefully. Many retirees move to new locations for one reason or another. Common reasons include tax benefits, cost of living, Medicaid eligibility rules and family reasons. If the contestability of your will is hot button issue for you, maybe this is an item to add to your list.