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Non-Contestability (No Contest) Clauses Defined

Non-Contestability Clause Defined

The non-contestability clause refers to a will provision that states if any beneficiary challenges the clauses of the will in a court, they will be disinherited. This clause intends to keep order during the settlement of an estate inherited by the heirs after the death of the owner. In the U.S., if the person contesting the clauses of the will have a probable cause of doing so, the non-contestability clause is not enforceable.

Another popular use of the no-contest clause is in insurance contracts. This clause prohibits an insurer from challenging the enforceability of an insurance contract after a certain period of time.

A Little More on Non-Contestability Clauses in Wills

The Uniform Probate Code states, “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”.

Setting up a trust for distributing an estate is often more effective than a will as it is more difficult to challenge the validity of a trust than to challenge a will. So, an individual seeking estate distribution may choose a trust over the will. It helps to distribute the estate as the owner desired without any contest. A trust provides more protection and a simpler vehicle for distributing the estate. Generally, the assets placed under a trust do not have to go through a probate process.

A pour-over will, along with a trust provides further protection as it allows to move any remaining assets in the estate into an existing trust. The appointed trustee ensures the assets are allocated and distributed properly according to the trust document.

Non-contestability in the insurance policy

A non-contestability is a life insurance policy requires the insurance company to challenge any information provided in the application for the insurance within a specific time period. Generally, the company may annul an already-issued policy within that time period (typically two years) if they find any material misinformation in the application. The non-contestability clause is included in the policy terms to prevent the insurance companies from denying the benefits to the policyholder on the basis of misinformation while the claim is made.

References for No Contest Clauses

https://www.investopedia.com/terms/n/noncontestabilityclause.asp
https://en.wikipedia.org/wiki/No-contest_clause
http://www.businessdictionary.com/definition/no-contest-clause.html

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