Estate Planning: Lesson from Sumner Redstone’s Competency Battle
For a variety of reasons, many have been following the drama filled court battle involving Sumner Redstone’s capacity that was dismissed earlier this week. Unfortunately, a battle over control of an individual and his or her money is not an uncommon occurrence. Typically, the higher the stakes the more likely a challenge will be lodged if a so-called beneficiary is cut out, which appears to be part of the rationale behind the Redstone case. For the individual who has been cut out, there may be nothing to lose by objecting. On the other hand, for the individual creating the Last Will and Testament or revocable living trust, there may be a desire to avoid a major legal battle between those beneficiaries who are to receive distributions after he or she is gone. If that is the case, then one way to deter such a battle is to have a ‘no contest’ or ‘in terrorem’ clause.
A no contest clause simply states that if a beneficiary objects to the provisions of the Last Will and Testament or revocable living trust, then they run the risk of completely losing or diminishing their share of any distribution. It may also mean that any of their descendants may lose or diminish their share depending on how the provision is drafted. The goal is to dissuade beneficiaries from objecting and possibly overturning the intent behind certain provisions of the Last Will and Testament or revocable living trust.
The use of no contest clauses depends on whether the jurisdiction in which one resides recognizes such provisions as valid. For example, not all jurisdictions recognize such clauses within revocable living trusts. Some jurisdictions place emphasis on a person’s final wishes as evidenced by the execution of a Last Will and Testament or revocable living trust and it is difficult to overturn that intent. Other jurisdictions void such clauses if there is good faith, probable cause or reasonable justification for bringing a suit, which may lessen the deterrent factor in using a no contest clause. However, these defenses also recognize that at times there are in fact valid reasons for objecting, such as undue influence, lack of capacity, or the like. In all three neighboring jurisdictions (Virginia, Maryland and the District of Columbia), each recognizes no contest clauses in some fashion.
Thus, it may be that in a case like Redstone’s, a no contest clause would have prevented court action. But if there is a likelihood of litigation, the use of such clauses should be carefully considered.