Keeping Your Estate out of Litigation

Several media outlets, including the New York Times, Washington Post, and the British Telegraph, have featured stories on the estate of Huguette Clark. Clark was born in 1906, the daughter of William Clark, a wealthy businessmen. She was briefly married but never had children. After her mother died in 1963, Clark largely withdrew from the world. In 1991, she entered Beth Israel hospital in New York City. She saw few visitors and remained there until her death in 2011.

Since her death, her estate of more than $300 million has become the subject of litigation. She executed a will in March 2005 that left her fortune to 21 distant relatives. She had never seen many of these relatives, and had not seen any of them for decades. A month later, she executed a different will that left the bulk of her fortune to a foundation for the promotion of the arts, with a large chunk also going to her long-time nurse. Her accountant and her lawyer each received $500,000, but her relatives were cut out entirely. The second will explicitly stated that no money was being left to the relatives and that Clark had had only minimal contact with them over the years.

The Clark Will

Nineteen of the relatives have challenged the second will that superseded the first. They allege that she was incompetent when she made the will at age 98 and that she was under the undue influence of her accountant, lawyer, and her nurse. If the relatives can show that the second will was invalid, they will benefit even if the first will is found to be invalid as well. In the absence of a valid will, Clark’s estate would be divided under New York’s intestacy laws, which would direct her property to her relatives. The trial is scheduled to start September 17, 2013, but may be called off if all interested parties can negotiate a settlement.

While most people are obviously unlikely to end up with a fortune like Clark’s, her tale provides lessons to people who plan to leave substantial assets to heirs. First, if a wealthy person leaves out all of his or her relatives, a challenge to the will should be anticipated. A detailed explanation for why relatives are being left out – beyond a simple declaration such as “I don’t know them well”- can be included with the will to emphasize the testator’s intent. If the testator knows years in advance that relatives will be left out of his or her will, he or she should make sure that that is clear in all estate plan documents in the years leading up to the testator’s death.

Revocable Living Trust

If a will challenge is anticipated in advance, a wealthy person may wish to use a revocable living trust in lieu of a will. A revocable living trust is an instrument by which a person’s property is transferred to a trust. He or she can withdraw money from the trust for living expenses, and the trust can be revoked at any time before death. Upon death, the property in the trust is distributed in accordance with the trust’s terms. A revocable living trust is more difficult to challenge than a will because the act of setting up the trust, transferring property to it, and withdrawing funds from it indicate that the creator of the trust was of sound mind when he or she made it.

If a will is used, a will contest clause should be included in the will. Such a clause provides that any beneficiary who is a challenger shall receive only a nominal amount (such as $1) in the event he or she challenges the will. These clauses, however, can themselves be challenged. Ironically, a testator who suspects a challenge from someone may wish to include that person in the will and provide him with an amount large enough to deter any will challenge. For example, if a son is left $25,000 of his father’s fortune, but forfeits that in the event of an unsuccessful challenge, the son may be leery of challenging the will and risking the $25,000. In contrast, if the son is cut out completely, he is more likely to challenge the will.

If a will is made by a person of advanced age, it is worth considering videotaping the person at the signing or contemporaneously with the signing to provide visual evidence that the person was of sound mind.

Finally, in a family with less than ideal chemistry, it is advisable to use a professional trustee (many banks are able to perform this role). While a professional trustee can be more expensive than using a family member as a trustee, it minimizes the potential for family infighting and for complaints about biased administration of the decedent’s estate.