Defending estate planning with no-contest clauses

It's a burning question, particularly among those with acrimonious family dynamics. No one wants his or her painstakingly designed estate plan to be undone by litigation. Even if a plan survives a court challenge, defending a will can incur significant costs—both financial and emotional.

The best method for avoiding estate litigation remains the same as always: anticipate likely avenues of challenge and, at the time of planning, collect and preserve the materials necessary to defend a future claim. A lawyer should carefully document the client's circumstances and conduct the work with an eye for weaknesses. If appropriate, obtaining a capacity assessment prior to signing a will —even if there is no question of mental infirmity at the time—can anticipate a challenge for lack of capacity. Likewise, a thorough and documented analysis of the testator's intentions and relationships can "head off" challenges for undue influence, and properly executed releases can reduce the risk of family law claims. It goes without saying that the formal requirements for preparing a will (witnesses, execution, etc.) should be scrupulously observed.

No contest?

An important tool available to estate planners is the "no-contest" clause, which disinherits a beneficiary if he or she challenges the will after the testator's death. In effect, the clause makes gifts conditional on the beneficiary's quiet acceptance of the will's terms. A challenger must risk it all: either he or she succeeds in overturning the will—in which case the whole will (including the no-contest clause) is thrown out and distribution is made under the intestacy rules of the relevant province—or the challenger loses, the will is upheld, and the no-contest clause disinherits the challenger. Canadian law permits the use of no-contest clauses, subject to certain restrictions, and there are numerous examples of them effectively preventing challenges.

While it remains somewhat hazy exactly what language will guarantee that a no-contest clause will be absolutely enforceable with the full effect intended by the testator, there is clear direction on what will render a no contest clause unenforceable.

The in terrorem doctrine

First, a no-contest clause cannot run afoul of the in terrorem doctrine. This rule holds that a court will not enforce a no-contest clause that is a "mere" threat. This is held to require that a no-contest clause, in order to be effective, must name an alternate beneficiary for the gift (either a specific person or the residue) if the clause is triggered. By so doing, the threat is "real" since there is an actual provision made to gift another person (i.e., a "gift-over"). The rationale is dubious since the law of will interpretation already automatically assumes a gift subject to a failed condition precedent falls into the residue. Nevertheless, the rule persists.

The doctrine further requires that the gift in question be personal property or a combination of real and personal property—a holdover from the rule's origin in the courts of equity where the court's jurisdiction was limited to personal property.

No ousting of the court's jurisdiction

Second, the no-contest clause must not operate to oust the court's jurisdiction to enforce a right that (a) the deceased conferred in the will or (b) is granted by law. This means the no-contest clause must still allow an application to the court for interpretation or enforcement of the will, as well as an application to enforce rights under family law or other similar legislation. A no-contest clause should carefully exclude these court processes from its triggering conditions.

Drafting tips

A no-contest clause should be drafted to suit the circumstances of the testator and be no wider than necessary to defend the will. If there is only one beneficiary who is likely to mount a challenge, the clause should be limited to him or her. Likewise, the clause should clearly articulate exactly what will constitute a challenge and what types of actions taken by a beneficiary should be excluded from this definition. Focus and clarification reduce the risk that an innocent beneficiary will be deterred from making a good faith application or find themselves accidentally offside the clause for a routine court process.

Likewise, the size and nature of the gift to the quarrelsome beneficiary should be carefully considered to maximize its deterrence—too small and the risk of losing it may not be enough to prevent litigation, too large and the intention of the testator to prefer other beneficiaries is defeated.

A useful tool

When used properly, a no-contest clause is a useful tool to reduce the risk of estate litigation. Canadian courts take notice of no-contest clauses and appear to be willing to enforce them so long as they do not offend certain principles. The use of no-contest clauses is certainly something that can be presented to clients with difficult family circumstances as a method of adding additional comfort and certainty to their estate planning.

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Not sure how to properly use a no-contest clause? Contact me to learn more.

^{This content is intended for informational purposes only and is not intended to constitute legal advice. This content primarily considers the laws of Ontario and the laws of Canada applicable therein and, consequently, it may not be applicable in other Canadian jurisdictions or elsewhere. Please contact us or local legal counsel for advice applicable to your particular jurisdiction and circumstances.}