Disinheritance and potential challenges: Wills vs. trusts in estate planning

Disinheritance is the act of intentionally excluding someone, typically a family member, from inheriting any part of your estate. This can be done through a will or trust, but the method chosen can affect the likelihood of challenges to your estate plan.

When a last will and testament is used for disinheritance, the excluded individual may contest the will in probate court. Common grounds for contesting a will include:

• Lack of testamentary capacity. The testator (person making the will) must have the mental capacity to understand the nature and extent of their assets, the natural objects of their bounty (family members and loved ones) and the disposition they are making.
• Undue influence. This occurs when someone exerts excessive pressure or coercion on the testator, causing them to make changes to their will that they would not have otherwise made.
• Fraud or forgery. If the will is found to be fraudulent or forged, it can be invalidated by the court.
• Improper execution of the will. Each state has specific requirements for the proper execution of a will, such as the number of witnesses and the testator's signature. Failing to adhere to these requirements can lead to a will being contested.

If the contest is successful, the court may invalidate the entire will or specific provisions, potentially resulting in the disinherited individual receiving a portion of the estate.

In contrast, when a trust is used for disinheritance, the process is generally more private and less likely to face challenges. Trusts are not subject to probate, meaning there is no public record of the trust's contents or beneficiaries. This privacy can deter potential challengers who may not even be aware of the trust's existence.

However, trusts are not entirely immune to challenges. Trust contests can arise on grounds similar to those of will contests, such as lack of capacity, undue influence or fraud. Additionally, trust contests may involve issues specific to trusts, such as:

• Improper formation. If the trust is not properly formed according to state law, it may be deemed invalid.
• Breach of fiduciary duty. Trustees have a legal obligation to act in the best interests of the trust beneficiaries. If a trustee breaches this duty, beneficiaries may challenge their actions.
• Ambiguous or unclear terms. If the trust language is vague or open to interpretation, beneficiaries may dispute the intended distribution of assets.

To minimize the risk of disinheritance challenges, consider the following strategies:

• Use a trust instead of a will. As mentioned, trusts offer greater privacy and are less likely to face challenges than wills. Properly funded and maintained, a trust can be a more secure way to disinherit someone.
• Include a no-contest clause. Also known as an "in terrorem" clause, this provision states that any beneficiary who contests the will or trust will be disinherited. While not enforceable in all states, a no-contest clause can deter frivolous challenges.
• Provide clear reasons for disinheritance. If you choose to disinherit someone, consider including a letter of explanation with your estate planning documents. This can help demonstrate your intentions and reduce the likelihood of a successful challenge. However, be cautious not to include language that could be perceived as vindictive or emotionally charged, as this may bolster claims of undue influence or lack of capacity.
• Maintain capacity and avoid undue influence. Ensure that you have the necessary mental capacity when creating or updating your estate plan. Avoid situations where someone could claim undue influence, such as having a beneficiary participate in the planning process. Consider involving an independent attorney or financial professional to help establish your capacity and minimize the risk of undue influence.
• Keep your estate plan up to date. Regularly review and update your will or trust to ensure it reflects your current wishes and circumstances. This can help demonstrate your ongoing capacity and reduce the likelihood of challenges based on outdated provisions.
• Consider alternative methods of distribution. In some cases, it may be appropriate to use alternative methods of distribution, such as lifetime gifts or beneficiary designations on specific assets (e.g. life insurance policies, retirement accounts). These methods can help ensure that certain assets pass directly to the intended recipients, reducing the likelihood of challenges to your estate plan.

Pros

• Wills are generally simpler and less expensive to create than trusts.
• Wills allow for greater flexibility in distributing assets, as they can be easily amended or revoked. This can be beneficial if your circumstances or wishes change over time.
• Wills can be used to nominate guardians for minor children, which is not possible with a trust alone.

Cons

• Unlike a trust, wills are public record, increasing the likelihood of challenges by disinherited individuals. Once a will is submitted to probate court, it becomes accessible to anyone who wishes to view it.
• Will contests can be costly and time-consuming, delaying the distribution of assets to beneficiaries. Legal fees and court costs can significantly reduce the size of the estate.
• In some cases, state laws may override the terms of a will, especially if a spouse or child is disinherited. Many states have provisions for spousal elective shares or mandatory inheritance for children, which can limit the effectiveness of disinheritance through a will.
• Unlike trusts, wills do not provide any protection against creditors or lawsuits, as the assets remain part of the testator's estate until distributed to beneficiaries.

Q. Can you completely disinherit a spouse?

A. In most states, it is not possible to completely disinherit a spouse. Many states have laws that provide for a spousal elective share, which entitles the surviving spouse to a portion of the deceased spouse's estate, regardless of the terms of the will or trust. The specific rules and percentages vary by state, so it is essential to consult with an estate planning attorney familiar with the laws in your jurisdiction.

However, there are some strategies that can be used to minimize the impact of a spousal elective share, such as:

• Executing a prenuptial or postnuptial agreement in which both spouses waive their rights to an elective share.
• Using non-probate assets, such as life insurance policies or retirement accounts, with designated beneficiaries other than the spouse.
• Establishing an irrevocable trust that removes assets from the estate subject to the elective share.

It is important to note that these strategies can be complex and may have significant tax and legal implications. It is always advisable to work with an experienced estate planning attorney when considering these options.

Q. How can you disinherit a child?

A. Disinheriting a child is generally easier than disinheriting a spouse, as most states do not have mandatory inheritance laws for children. However, it is still important to take steps to ensure that your wishes are clearly expressed and legally enforceable.

When disinheriting a child, consider the following:

• Be explicit in your will or trust about your intention to disinherit the child. Merely omitting the child's name may not be sufficient, as some states have laws that provide for the inheritance of omitted children.
• Include a no-contest clause to deter the disinherited child from challenging the estate plan.
• Consider providing a letter of explanation outlining your reasons for disinheritance. This can help demonstrate your capacity and intent, reducing the likelihood of a successful challenge.
• If you have concerns about the child's ability to manage finances or potential substance abuse issues, consider establishing a trust with a third-party trustee to manage any assets you wish to leave to the child.

Q. What happens if you die without a will or trust?

A. If you die without a valid will or trust (known as dying "intestate"), your estate will be distributed according to your state's intestate succession laws. These laws typically prioritize distribution to your closest relatives, such as your spouse, children, parents or siblings.

Dying intestate can have several drawbacks:

• Your assets may not be distributed according to your wishes, as the state's laws will determine the beneficiaries and the distribution percentages.
• The process of administering an intestate estate can be more time-consuming and expensive than probating a will or administering a trust.
• Your estate may be subject to higher taxes, as you will not have the opportunity to engage in tax planning strategies that can be incorporated into a will or trust.
• You will not have the ability to nominate guardians for minor children or make provisions for the care of any pets.

To avoid these issues, it is crucial to create a comprehensive estate plan that includes a will and/or trust, along with other essential documents such as powers of attorney and advance directives.

Q. How often should you update your will or trust?

A. It is generally recommended to review and update your will or trust every three to five years, or sooner if you experience significant life changes such as:

• Marriage, divorce or remarriage.
• Birth or adoption of a child.
• Death of a spouse or beneficiary.
• Substantial changes in your financial situation.
• Acquisition or sale of major assets.
• Changes in tax laws or estate planning regulations.

By regularly updating your estate plan, you can ensure that it reflects your current wishes and circumstances, minimizing the risk of challenges or unintended consequences.

When deciding between a will or trust for disinheritance purposes, it is essential to consider your unique circumstances and goals. While trusts generally offer greater protection against challenges, wills may be more suitable in certain situations. Consulting with an experienced estate planning attorney can help you determine the best approach for your needs.

Remember, no matter which method you choose, taking steps to ensure the validity and clarity of your estate plan is crucial in minimizing the risk of disinheritance challenges. By understanding the pros and cons of wills and trusts, and implementing appropriate strategies, you can better protect your wishes and provide for your loved ones according to your desires.