Estate Planning Tools to discourage Estate Challenges

12 Sep 2024

A noticeable shift in acceptance of a will maker’s wishes since Covid, has become an essential consideration in estate planning.  For example, when there is a blended family, children in particular, appear increasingly willing to challenge entitlements when their parent dies.  Where a will maker has left benefit for a charity, the charity will often suffer because of such claims. Charities often run tight budgets, and the negative publicity of defending an estate challenge by an unhappy child typically sees them choosing to disclaim what was left to them by the will maker.

There is no shortage of information available about avenues for challenging an estate, and no shortage of specialist lawyers equipped to navigate the path with their client.

The sad reality is that estate disputes often start as soon as the funeral is over.  Everything, including any family trust assets, may become fair game.

Wills are a vastly undervalued tool for estate planning. This article considers two lesser-known tools that can be incorporated into wills to assist in warding off challenges.

Mutual Wills

A couple with children from former relationships may agree that they will leave their estates to each other on the promise that all children will be provided for equally in the end.  One of the concerns step-children may have around this scenarios is whether their step-parent will change their will after their parent dies, and disinherit them.

To address this concern, it is possible for wills to be made in a way that is contractually and mutually binding on a couple.  The couple make mutual wills pursuant to section 30 of the Wills Act 2007 (Act), in which they promise that that the survivor will not change specified provisions in the will after the death of the first partner.  For example, including a binding promise that the survivor must leave their estate to all children and step-children in equal shares.

In the event that the survivor does change their will, the disinherited children would be entitled to claim any part of the benefit that they missed out on from the survivor’s estate.

An obvious benefit of mutual wills is more certainty for children that their step-parent is not entitled to disinherit them and that they have recourse against the step-parent’s estate for their promised inheritance, if needed.  However, that might not be enough to stop the challenge when a child wants or needs financial benefit now.

For some couples, mutual wills may be a reasonable alternative to a relationship property agreement or family trusts, although their contractually binding nature means that they need to be considered carefully.

No-Contest provisions

Another tool available in estate planning is a no-contest provision in a will.

If a person challenges a gift that they are to receive via the will (for example, a cash legacy – on the basis that they do not think the gift is adequate), a no-contest provision can provide that the claimant must forfeit the gift.  No-contest provisions are legal in New Zealand, with plenty of case law to evidence their effectiveness.

To assist with the impact and enforceability of no-contest provisions, it is possible to provide that if a claimant does decide to challenge their entitlements, their cash legacy is gifted over to fund the litigation costs incurred by the will executor or other beneficiaries.

It is important to have the right legal advice when bespoke provisions such as mutual wills and no-contest provisions are being used.  The drafting needs to envisage, not just the legal position, but also the different reaction that may be expected from family members from different generations.