Monthly Archives: March 2013

March 25, 2013

No Contest Clauses – Boilerplate or Bombshell

by Morgan Wiener

While fiduciary litigation often arises due to family conflicts and changes in family circumstances, another frequent source of litigation is the decedent’s estate planning documents themselves.  Estate planners often include a no contest clause in a will in the hopes of preventing a fight over the validity of the instrument; however, it is often these no contest clauses themselves that are the source of the very litigation they seek to prevent.

A no contest, or in terrorem, clause is a provision found most frequently in a will, although it can also be included in trusts, designed to discourage litigation over the testator’s estate plan by disinheriting a person who unsuccessfully contests the will.  A will contest can encompass a variety of different challenges to a will and is broadly defined by Black’s Law Dictionary as “[a]ny kind of litigated controversy concerning the eligibility of an instrument to probate.”

Planners (and potential will contestants) may believe that these clauses are generally not enforced and, consequently, include them in estate planning documents as boilerplate.  This belief is not unfounded, as one of Colorado’s leading cases on the subject, In re Estate of Peppler, states that “[w]hile no-contest clauses in wills are generally held to be valid and not violative of public policy, such clauses are to be strictly construed, and forfeiture is to be avoided if possible.”  Even the Colorado Probate Code sections on no contest clauses seem to reinforce this belief, stating that “[a] provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings.”  C.R.S. §§ 15-11-517, 15-12-905.

The reality, however, is that no contest clauses are enforceable when there is no probable cause for bringing the will contest; this office, for example, recently litigated a case in which we had a no contest clause enforced against beneficiaries of an estate and trust. 

Under Peppler, probable cause is defined as “the existence, at the time of the initiation of the proceeding, of evidence which would lead a reasonable person, properly informed and advised, to conclude that there is a substantial likelihood that the contest or attack will be successful.”  Colorado commentators have noted that whether the contesting party had a “substantial likelihood of success” is to be considered in light of the burden of proof and the elements of the claim.  David M. Swank, No-Contest Clauses:  Issues for Drafting and Litigating, 29 Colo. Law. 57.  This means that in a challenge to the validity of a will, the contesting party has the ultimate burden to prove by a preponderance of the evidence that the challenged will is invalid because of lack of testamentary capacity, undue influence, fraud, duress, mistake, or revocation.  In determining whether the contesting party was “properly informed and advised”, one factor for the court to consider is whether “the beneficiary relied upon the advice of disinterested counsel sought in good faith after full disclosure of the facts.”  Although “disinterested counsel” is not defined, Colorado commentators have also suggested that “disinterested counsel” does not include the contesting party’s counsel for the will contest because, if the advice of such counsel were sufficient, this factor would be essentially meaningless as nearly every person bringing a contest would be able to meet it.  Id.

As you can see, this probable cause standard has some teeth to it, and complex, fact intensive litigation can arise not only about the challenge to the will itself, but also about whether the no contest clause should be enforced to disinherit the unsuccessful will contestant.  Potential will contestants should, therefore, consider all of the facts, think carefully, and obtain legal advice before bringing a will contest.  Planners should also discuss the issue with their clients before adding a no contest clause to a will, consider whether a challenge to the will is likely and what types of challenges may arise, and make sure that the testator understands that the very tool designed to prevent litigation may itself be the cause of a lawsuit.

March 18, 2013

“I Feel Good” Settlement Suffers a Setback

by C. Jean Stewart

Relying on Section 3-1102 of the Uniform Probate Code,  a provision included, in part, to prevent fiduciaries from blocking a compromise, the South Carolina Supreme Court recently refused to implement a settlement agreement among beneficiaries of the estate of the late James Brown when fiduciaries objected to the proposed settlement, Wilson v. Dallas, 27227, 2013 WL 697042 (S.C. Feb. 27, 2013) .

The appellants, who prosecuted the appeal, were successor fiduciaries who had been appointed (and then removed) by the trial court after family members and beneficiaries filed objections seeking removal of the original personal representatives and trustees.  A South Carolina trial judge had presided over a 4-day hearing on the merits of the settlement, had approved the agreement and had ordered the fiduciaries to implement it.  Instead, the objecting fiduciaries appealed the order, arguing that the settlement violated the intent of the Godfather of Soul, who died on Christmas Day in 2006.   

Section 62-3-1102 of the South Carolina Probate Code, (substantially identical to Section 15-12-1102 of the Colorado Probate Code), requires the trial court to find (1) that the contest or controversy is “in good faith,” which the South Carolina Supreme Court found was not true in this case and (2) that the effect of the agreement on the interests of persons represented by fiduciaries or other representatives is “just and reasonable,” which the Court found it was not.  Instead, the South Carolina Supreme Court found that the parties had violated the singer’s clearly stated desires, refused to enforce the settlement agreement, and remanded the case to the trial court. 

In addition to the findings that the controversy was not in good faith and that the effect of the agreement was not just and reasonable, the South Carolina Attorney General came under severe criticism in the opinion for providing in the settlement for the Attorney General’s continuing involvement in the day-to-day management of newly-formed charitable trusts, which the South Carolina Supreme Court concluded usurped the roles of the fiduciaries appointed by the deceased singer and the responsibilities of the court.

 

March 11, 2013

Congratulations!

Congratulations to our attorneys selected as Colorado Super Lawyers or Rising Stars for 2013 in the following areas:

Estate and Trust Litigation:

  • Super Lawyers
    • Kelly Cooper
    • Carol Warnick
  • Rising Star
    • Rebecca Klock Schroer 

Estate Planning and Probate:

  • Super Lawyer
    • David Crandall
    • Laura Hundley
  • Rising Star
    • Chelsea May

March 4, 2013

Fiduciaries Face Facebook Fights

by Morgan Wiener

Gone are the days when the personal representative of an estate could simply monitor the decedent’s mail for a few months and expect to obtain a fairly complete picture of the decedent’s accounts and bills.  Today, many of us choose to forego receiving paper account statements and bills and, instead, receive them either by email or by otherwise accessing the account online.  This seemingly simple change, along with the myriad other ways in which we increasingly live our lives and transact our business online, can lead to many questions after death about how to deal with a decedent’s “digital assets”.

To name just a few, a person’s digital assets may include computer hard drives, Facebook and other social networking accounts, email accounts, and passwords to access everything from online bank accounts to Amazon.com to the electric and cable bills.  After death, many questions may arise about these digital assets, including:

  1. How do you access these accounts?  What are the usernames and passwords?  Are any privacy laws or company privacy policies violated if the account is accessed by someone other than the account holder?
  2. Who should have access to the digital assets?  While it may make sense for the personal representative to have online access to the decedent’s bank account, should the personal representative also have access to the decedent’s Facebook account?  If the decedent left his tangible personal property to his children, does that include his computer hard drive and all of the files stored on it?
  3. What digital assets should even be accessed after death?  Did the decedent want anyone to have access to his personal email account?  What if he wanted the personal representative to have access to the bills sent to this account, but not to the emails between family members?
  4. And, in the first instance, what digital assets even exist?  While it may be safe to assume that the decedent had online access to his bank account, how do you know whether he also had a monthly order with Amazon.com for paper towels and laundry detergent?

While it may be impossible to fully answer, or even anticipate, all of the questions that may come up, it is important to think about them and how to address them before death or incapacity.  Some specific questions to think about for yourself and with your client are:

  1. Who do you want to have access to your online accounts?  Do you want the same person to have access to all of your accounts or do you want different people to have access to different accounts (bank account vs. personal email, for example)?
  2. How will the people you want to have access to your digital assets know what accounts you have and what the usernames and passwords are?
  3. Do you want a list of account usernames and passwords to be available to anyone prior to your death or do you not want anyone to see it until after your death?
  4. Do you want your agent under a general power of attorney or a healthcare power of attorney to be able to access any of your digital assets in the event of your incapacity?

One possible way to address these questions and organize the information is with a Digital Assets Inventory (click here to view sample inventory). The Digital Assets Inventory is akin to a personal property memorandum in that it is completed by the client, kept by the client, and is updated by the client as digital asset information changes.  Once completed, the client may then decide when and with whom to share the inventory.

Although there are no easy answers to these questions, digital assets are here to stay and the issues raised by them must be addressed.  Families have already ended up in litigation over these types of questions, and, unless steps are taken to proactively address these issues prior to death or incapacity, disputes over digital assets are only likely to increase over time.