The last thing you want as an estate planner is to take the stand to explain why a will or trust you drafted should be upheld. Yet, the risk of this happening is increasing due to a variety of demographic factors: we live longer, we get divorced more, and we have more wealth. I have handled over thirty contested probate cases. I have seen the discomfort of the estate planner under attack. From these cases, I offer the following to help you avoid joining me in court.
Lesson 1: Family Pathology Is The Key Predictor Of Litigation
What kind of families are likely to end up in Probate Court? Dysfunctional ones. This is why probate litigation can take on Jaundice v. Jaundice proportions as the parties use the process to settle old scores. Family pathology is the key predictor of litigation. Although perhaps obvious, this often unheeded observation is the most important lesson. If you identify up front which families are likely to end up in court, you can increase your diligence in those situations to try to ensure that your plan is not challenged and, if it is, that it is upheld.
Certain family dynamics recur in these cases. The children vs. stepmother scenario is one that commonly plays itself out in court. This is not a sexist slur: men are more likely to have wealth; women tend to outlive men; and some men re-marry late in life younger women. When dad dies leaving much of his estate to his second or third wife who is disliked by his children, litigation is likely. The challenge by the children of Howard Marshall to his will benefiting Anna Nicole Smith is only the most famous of this all-to-common situation.
The next most common dynamic is the fight between adult children who do not get along where one child is disproportionately favored in the estate plan. If you are preparing a will or trust that benefits one child more than another, particularly if the children are estranged from each other, be prepared for a challenge.
!Lesson 2: Know Who Your Client Is
Sounds simple, but in the estate planning area, this can be tricky. Lawyers who are not clear about whom they represent can get in trouble. I offer some examples from my cases:
- An adult child asks a lawyer to prepare a durable power of attorney appointing the child agent for his parent. Who is the client: the parent or the child?
- An adult child who is attorney-in-fact for his parent asks a lawyer to prepare a trust and other documents for the child to sign as agent that benefit the child and his family. Who is the client: the parent or the child?
In each case, a child asks a lawyer to prepare an instrument to control the financial affairs of the parent, raising concerns of exploitation. My advice is that you should always treat the principal (the parent), not the agent (the child), as the client and meet with the parent alone to make sure he or she is competent and truly desires what has been requested. If you do this, you will help protect the parent from possible exploitation and yourself from a potential appearance in court.
!Lesson 3: Mental Capacity Is The Critical Issue In Most Will And Trust Contests
Wills and trusts generally can be challenged on three grounds of 1) lack of proper execution; 2) undue influence; and 3) lack of testamentary capacity. The first ground is almost never raised. The second ground is difficult to establish absent proof of some mental incapacity because undue influence generally exists only if the testator was so dominated by the influence of another that the will or trust reflects the wishes of a third party, not the testator. Only a mentally impaired person is likely to be so influenced. This does not mean that cases will not be decided on undue influence grounds; rather, mental capacity will always be a critical issue in those cases.
Although mental capacity will almost always be an issue, the standard for testamentary capacity generally is low. Testamentary capacity usually exists if the testator:
- Understands the act of making a will;
- Understands the extent and nature of his property;
- Knows the natural objects of his affection (usually, his or her relatives); and
- Understands the dispositional scheme in the will.
If the above are present, testamentary capacity will usually be found as long as the estate planning decisions are not due to delusions. These elements merit particular attention in your estate planning discussions with the client.
!Lesson 4: A Tie Goes To The Challenger Of The Will
In many jurisdictions, including New Hampshire, the proponent of a challenged will has the burden of proving by a preponderance of the evidence that it meets all grounds for a valid will, including testamentary capacity and absence of undue influence. If it’s a tie, you lose. This is all the more reason to be careful.
!Lesson 5: Take Steps To Protect The Will Or Trust From Challenge
!As a trial attorney called upon to defend a will or trust, the steps I always want the estate planner to have taken are:
1. The lawyer met with the client alone, not in the presence of family members, both in the initial estate planning conference and in a pre-execution conference to review the documents. This helps prove that the testator was competent and acted free of undue influence.
2. The lawyer took detailed notes of interactions with the client. Ideally, the notes document one or more conversations with the client in which the client articulated all the elements of testamentary capacity (See Lesson 3). It is particularly helpful if there is documentation of the client’s understanding of the second element (knowledge of the nature and extent of one’s wealth) because this element is sometimes difficult to establish as the attorney may not recall discussing it with the client.
In some cases, such as ones involving a transfer of significant wealth in a dysfunctional family, additional precautions may be warranted. In these cases, relying on the lawyer and witnesses to the execution to support a will or trust from challenge may not be enough. Remember, the estate plan you prepare today will not be challenged until your client dies, which may be many years away. When that happens, your memory may be faded and the execution witnesses, who likely were secretaries or paralegals if the document was signed in the office or nurses if it was signed in a medical setting, may be unavailable and/or have little or no memory of the client or the execution conference. In cases where the risk of challenge appears high, you may wish to retain a physician to document capacity and/or to videotape the client discussing the estate plan. These precautions can prove critically valuable in upholding the plan down the road.
!Lesson 6: An In Terrorem Clause Can Be Helpful, But Also Can Invite Abuse
An in terrorem clause in a will or trust provides that, if a beneficiary challenges the instrument or, as the clause is sometimes drafted, actions of the fiduciary, the beneficiary will forfeit all benefits. It requires the beneficiary to make a careful cost-benefit analysis before filing any challenge. If the beneficiary’s inheritance is more than nominal and a challenge’s chances of success appear speculative, the clause usually works and keeps the peace. In one of my cases though, it had the unintended effect of inducing a trustee to take unreasonable acts towards a beneficiary in a transparent attempt to bait her into challenging his conduct so that he in turn could try to force a forfeiture of her share. If the fiduciary is not responsible, the clause can invite abuse.
!Lesson 7: A Power Of Attorney Can Become A License To Steal
Rarely, if ever, is there a provision for accountability in a power of attorney. All too often, a child is granted a power and starts off using it responsibly to help mom or dad, but as time goes on, temptation grows, and eventually the child slips into using the parent’s money as his or her own. The family may discover the losses much later, perhaps when marshalling assets for the inventory of the parent’s estate. In an accounting action against the child, establishing breaches of fiduciary duty and damages may be difficult as the child will often testify that the parent authorized or ratified the transactions (likely in cash) in conversations involving only the parent and child. In retrospect, a conservatorship or guardianship may have been necessary.
!Lesson 8: Consider An Independent Fiduciary
If family pathology is poor (Lesson 1), you may want to ask your client to consider appointing a neutral third party as a fiduciary of the estate or trust. The presence of an independent fiduciary tends to reduce competition among the parties and makes the process more transparent, which in turn builds confidence and reduces tension. Some judges are quick to appoint a neutral party when family squabbling begins. If poor family pathology suggests that fights are likely, estate planning is the client’s chance to select a neutral party before the Court may do it anyway.
!Lesson 9: Elder Abuse May Have To Be Reported
In some states, including New Hampshire, anyone having a good faith belief or suspicion of elder abuse, exploitation, or neglect, including self-neglect, has a duty to report it to the state so that the appropriate elder care authorities can conduct an investigation. Counsel confronted with possible elder financial or other exploitation must be mindful of these requirements in that a failure to file a required report may in some states expose counsel to risks of civil liability.
!Lesson 10: Executors Should Liquidate Securities As Quickly As Possible
Estate planners commonly represent executors in the administration of estates. In my experience, the most common negligence claim against executors is for estate losses due to an alleged failure to timely liquidate securities. In New Hampshire, like some other states, the executor is charged with the duty to promptly liquidate, not manage or invest, estate assets so that the proceeds can be distributed to beneficiaries. The executor who delays in the sale of securities does so at his or own peril.