January 19, 2017
A no-contest clause is also referred to as an in terrorem clause and as a “penalty clause” in Wisconsin. At its simplest, it is a clause in a last will and testament, trust, or other “governing instrument” that provides a penalty against any beneficiary who challenges the will, trust or other governing instrument.
A typical no-contest clause in a last will and testament or trust would provide that a beneficiary who challenges his or her distribution or distribution amount is eliminated from the last will and testament or trust. For example, a last will and testament might say that a beneficiary who is given $10,000.00 will lose his or her share if he or she challenges the last will and testament.
As a no-contest clause is typically used in a last will and testament or in a trust in Wisconsin, we will limit our discussion to its use in these two documents. It is also important to note that the relevant laws on no-contest clauses vary from state to state. Our focus is solely on the relevant Wisconsin no-contest clause.
Wisconsin’s No-Contest Statute
Unlike many states, Wisconsin has a specific no contest clause statute that is specifically applicable to last wills and testaments and to trusts. The Wisconsin statute, Wis Stats 854.19, reads as follows:
854.19 Penalty clause for contest. A provision in a governing instrument that prescribes a penalty against an interested person for contesting the governing instrument or instituting other proceedings relating to the governing instrument may not be enforced if the court determines that the interested person had probable cause for instituting the proceedings.
Clearly, there is a lot of information in that one sentence statutory provision. So, we’ll look at the most important issues that relate directly to the use of a no-contest clause in our estate planning practice. We will not attempt to define “interested person” in depth in this article, but for our purposes, think of “interested person” as someone who would receive property upon your death due to being named in a last will and testament or trust. In addition, think of “interested persons” as the people who would receive property upon your death or if there were no last will and testament or trust, such as your children or spouse (so called “heirs-at-law”).
Limitations on Enforcing No-Contest Clauses
Clients often believe that a no-contest clause will prevent someone from challenging a last will and testament or trust. However, there is no bullet proof protection provided for a no-contest clause in Wisconsin. Wisconsin is among states that allow a no-contest clause to not be enforced if the challenger has probable cause for challenging the last will and testament or trust. That is, if someone had a reasonable basis for challenging your last will and testament or trust, the no-contest clause will not be enforced. This is true even if the challenger ultimately lost his or her challenge – and your last will and testament or trust was upheld by the court. If the challenger had probable cause for the challenge, the no-contest penalty would not be enforced against the challenging party.
However, if a beneficiary were to challenge his or her share or amount without probable cause, the no-contest clause could reduce or eliminate the challenger’s inheritance under the last will and testament or trust.
Is a No-Contest Clause Right for Everyone’s Last Will and Testament or Trust?
For most clients, there is no need for a no-contest clause. Where necessary, our clients completely eliminate “heirs-at-law” that they do not want to include in their last will and testament or trust. In other words, most of our clients choose to leave nothing to interested persons who they do not want to receive anything. Therefore, if a son or daughter, for example, is “cut-out” of the last will and testament or trust, there is no benefit to including a no-contest clause since the son or daughter already receives nothing.
So, no, a no-contest clause is not right for most of our client’s last will and testament or trust. In addition, some clients might feel overly protected if their last will and testament or trust has a no-contest clause in it. As set forth above, the no-contest clause has major limitations in Wisconsin.
When Is a No-Contest Clause a Good Idea?
If an interested person is likely to attack a last will and testament or trust because he or she feels entitled to a bigger share, doesn’t like your trustee or personal representative, or simply to make the administration process difficult, then a no-contest clause may be appropriate. Sometimes a client expects that a certain child or spouse will feel entitled to more than he or she will be given. Perhaps a client appreciates that a certain child is always difficult and will try to cause trouble, but that child is still to receive a share of the probate or trust estate. In these situations, a no-content clause may prove helpful.
Where a person to be included is a known trouble maker, it can make sense to add a no-contest clause in your last will and testament or trust. Why? A child who stirs up trouble or feels entitled to more than his or her siblings, may be unwilling to challenge your choices and risk losing his or her share of the inheritance. The no-content clause may stop that individual from challenging your final wishes if he or she knows that he or she may lose and get nothing from you.
The Right Solution for You
There is no one size fits all answer for determining when to use a no-contest clause. Our estate planning lawyers review each client’s unique situation to consider the many estate planning questions and options. A no-contest clause is just one of the tools that we use, where appropriate and beneficial, when discussing and preparing our client’s estate plans.
A no-contest clause in a last will and testament or trust can be enforced in Wisconsin. However, if there is a reasonable basis for challenging a last will and testament or trust, the no-contest clause will not be enforced even if the challenger loses. As such, the use of no-contest clause is limited in Wisconsin. Still, the clause may provide some protection against a beneficiary who challenges a last will and testament or trust without any reasonable basis for the challenge.
Contact us and we can help sort out what type of estate plan is right for you. Our attorneys will work with you to determine what estate planning tools and options are best for you.