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Disinherited Heirs May Have a Harder Time Challenging a Revocable Trust in North Carolina

A lawsuit called a will or trust “contest” occurs where a disinherited heir tries to get assets which were not willed to him or her, or not distributed to him or her through a trust by the deceased asset owner.  Frequently, the deceased person had a very good reason for not leaving assets to an heir who had not treated the deceased person well during life.

Because a will becomes a public document once its author passes away and probate begins, anyone can view the probate file and see what assets were left to whom.  A disgruntled or disinherited will heir can use the long, open probate process to his or her advantage, using a court process to tie up estate assets so that probate cannot effectively proceed.  Thus, the will challenger can potentially hold the executor and listed will beneficiaries “hostage” by blocking distribution of their inherited assets, which can give the challenger a lot of power to force a settlement with the will executor (and beneficiaries.)

Several features may make a trust harder to challenge in North Carolina.  Assets held in valid trust do not go through the probate process.  In addition, North Carolina law protects trust privacy.  Only trustees or beneficiaries actually named in the trust are legally entitled to receive a copy of a trust, or an accounting from the trust, without a judge’s order.  So, a challenger disinherited from the trust (and his attorney) may not be easily able to get a copy of the trust from the trustee–it may thus be much harder to challenge distribution of the assets with no road map to follow.  And, unlike the probate of a will, the trustee is not legally required to give notice to all of the heirs of the deceased trust grantor.

A will challenger can challenge will beneficiaries more efficiently, as a group, by hijacking public probate proceedings.  When challenging a trust, however, a challenger may be forced to file a lawsuit against each beneficiary individually, making the challenger’s job much more difficult, and increasing the challenger’s legal costs.

The following two methods are commonly used by attorneys to challenge wills:

capacity challenge–the challenger tries to prove that the testator (will author) was mentally incompetent when the testator signed the will, thus the testator did not know what he was doing when he left the challenger out, and the entire will is invalid.  The challenger may try to prove that the testator did not intend to sign a will at all, and that some other heir made the will instead of the testator.

duress or undue influence challenge–the challenger attempts to prove that the testator was pressured by someone else (such as another heir) to leave the challenger out of the will.

Capacity, duress, or undue influence may also be argued in a revocable trust contest case, but these arguments can be harder to win.  The following example demonstrates why.

 EXAMPLE:  When widowed Dad turns 70, he has a lawyer draft a revocable trust for him, where he leaves all of his assets at his death to Good Son, who has good manners, is always around, and always helps out.  Dad disinherits Bad Son in that document, who joined a motorcycle gang 25 years before, rode out to Las Vegas, and never looked back.

The revocable trust that Dad signed at age 70 is a “living” trust, meaning that dad “funds” the trust with all of his assets right away, and in this case manages these assets himself as trustee of his own trust for 15 years, until Dad turns 85.  A dementia diagnosis at age 85 causes Dad to resign as trustee, and turn over the management of his trust assets to his successor trustee Good Son.

When Bad Son learns in Las Vegas that Dad has passed away at age 87, Bad Son hops on his Harley, and rides back to North Carolina to find an attorney to help him get Dad’s assets (Bad Son assumes that Dad would not knowingly leave Bad Son any assets.)  Good Son confirms (as trustee of Dad’s trust) that Dad did not leave Bad Son anything.

Bad Son finds a North Carolina lawyer to consult.   The lawyer Bad Son visits has some bad news, and recommends against attempting a lawsuit.  Because Dad set up the revocable living trust at age 70, and picked Good Son as the sole beneficiary at that time, Dad has a 15 year history of successfully managing Dad’s own assets after selecting Good Son as sole beneficiary.  With Dad’s successful 15 year history of competently managing his own assets, it would be extremely hard to prove that Dad was not previously competent to set up the trust at age 70 (when he left Bad Son out.)

Plus, because Dad could have chosen to add Bad Son as a beneficiary during the 15 year period when Dad was managing his own trust assets, but continued to leave Bad Son out, it would be very hard to prove that Good Son continually unduly influenced Dad to leave Bad Son out during Dad’s entire 15 year period of successful trust management.

The extra difficulty in challenging  Dad’s revocable living trust could cause Bad Son to ride back to Vegas, and look for some other trouble to get into.

How to Legally Avoid Taxes When Selling Your Home or Passing Down Your Home in a Will Bequest

Categories:  Estate planning, trusts, elder law, Winston Salem, North Carolina, NC.

The basis in your home is its value for tax purposes. It can be increased by changes such as home improvements.

When your home is sold, the capital gain on the sale is calculated as the difference between the sale price and the home’s basis. If you have been in the home for many years and the home has appreciated, the capital gain could be large, and subject to a large capital gains tax.

home for saleFortunately, where the primary residence is sold and it was the principal residence for two of the last five years before the sale, individuals may typically exempt up to $250,000 in federal capital gains taxes. Couples may typically exempt up to $500,000 in capital gains taxes under these conditions.

If you want to give your home to another, it is typically much better to leave the home to an heir in a will bequest than to gift the home to the recipient during life.

When your home is passed down to a beneficiary in a will, the beneficiary frequently benefits from a “step up in basis,” where your basis in the asset is updated to the current market value of the home. If the home has appreciated since its original purchase, this “step up in basis” may save the beneficiary thousands of dollars in capital gains taxes.

This rule may be more complicated in cases where the bequest is made to a spouse, and where the home is held jointly with right of survivorship.

Source:

Avoid Taxes on Your Home Sale Legally, THE HUFFINGTON POST (October 20, 2015), http://www.huffingtonpost.com/moneytips/avoid-taxes-on-your-home-_b_8307234.html.

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