When clients choose to disinherit or reduce an inheritance for a child, I am often asked whether they should include a “no contest” provision in their estate documents or if they should leave the child one dollar. In this blog, I will address these common questions.
No Contest Clauses
No contest clauses, also known as in terrorem or forfeiture clauses, are generally enforceable in North Carolina, but their effectiveness is subject to significant limitations. What is a no contest clause? It is a provision in a will, trust, or other testamentary instrument that threatens to disinherit anyone who challenges the validity of the instrument in court.
Importantly, a no contest clause serves little to no purpose when a child is fully disinherited because they have nothing to lose by challenging the document. Another name for a no contest clause is a forfeiture clause, and if there is nothing to forfeit, the clause is ineffective.
However, when reducing or limiting the inheritance of a child, including a no contest clause is usually worthwhile, as it may deter frivolous challenges to the document, but it has significant limitations. So, what limits the effectiveness of a no contest clause? North Carolina courts have made it clear that no contest clauses are not enforceable if a beneficiary contests the will or trust in good faith and with probable cause. The North Carolina Supreme Court has adopted the “probable cause” rule, holding that a no contest clause does not result in forfeiture if the challenge is made in good faith and with a reasonable basis. Additionally, North Carolina courts strictly construe such clauses, reaffirming their inapplicability in cases pursued with probable cause. Moreover, if a disgruntled heir is successful in challenging the will or trust, the no contest clause becomes moot, because the entire document containing the clause is declared void by the court.
While I generally encourage the use of a no contest clause when reducing a child’s inheritance, I make sure clients understand its significant limitations. That said, there are still potential benefits. Such clauses can effectively deter frivolous challenges and result in forfeiture if the court finds the challenge lacked good faith or probable cause. Such clauses may also dissuade an ill-informed heir who wrongly assumes the clause applies to any legal challenge, regardless of good faith.
In general, a no contest clause likely reduces the likelihood of challenges by a child receiving a reduced inheritance. The extent of its deterrent effect is often proportional to the amount at stake. For example, a no contest clause involving a $1,500 bequest to a child may have little impact while a clause involving a child among two receiving 30% of a $2 million dollar estate (versus their sibling receiving 70%) may be more persuasive in deterring a challenge.
The Myth of the One Dollar Bequest
I’m often surprised by how many clients believe the law prevents them from completely disinheriting a child. Two common misconceptions are that leaving a child one dollar somehow prevents a challenge, and that the law requires parents to leave something to their children. Both beliefs are incorrect. Unlike with a spouse, who has statutory rights, a child can be completely disinherited in North Carolina.
Leaving one dollar to a child, or any nominal amount, serves no strategic legal purpose. A one-dollar bequest can have unintended consequences and ironically gives the child certain rights, including the right to notice, that they would otherwise not have if not for the one-dollar bequest. It may also come across as taunting and could inflame tensions. If the purpose is to acknowledge the existence of a child, there are less inflammatory ways of doing so. Acknowledging a disinherited child is generally recommended to prevent later claims that they were omitted due to mistake or diminished capacity. But this can be done without a one-dollar bequest. One option is simply naming all children in the will. Additionally, language such as “for reasons satisfactory to me, I am intentionally omitting my son, John Doe” conveys a neutral tone. If appropriate, one may add “not for any lack of love or affection.” This kind of language helps acknowledge the child without adding emotional fuel to potential disputes. If the purpose is to act as a deterrent to prevent frivolous challenges, a larger amount in conjunction with a no contest clause would obviously be more appropriate.
Summary
While no contest clauses can be useful for discouraging challenges when a child’s inheritance is reduced, they have limitations. Their enforceability in North Carolina is limited by the “probable cause” rule, which protects beneficiaries who contest a will or trust in good faith.
Likewise, a one-dollar bequest is neither required nor effective. It provides no meaningful protection against challenges and may even provoke unnecessary conflict and provide unintended rights to the one-dollar recipient.
In addition, neither a no contest clause nor a one-dollar bequest effectively prevents challenges from a fully disinherited child. In a follow-up blog, I will discuss alternatives to disinheriting a child and strategies to limit successful litigation when a child is completely disinherited.
About the Author:
Andrew M. Brower is a Board Certified Specialist in Estate Planning and Probate Law at Law Firm Carolinas.