K.M. Khan Law, P.C.

Legal thoughts and analysis from Old Town's Country Lawyer

Category: Estate Planning

The No Contest Clause: Protecting your estate from unhappy heirs


Attorneys love fancy Latin terms. At the end of many wills and trusts, you will usually find a section we proudly call the In Terrorem Provision. Most people will generally refer to such a provision as a “no contest” clause. The intent behind such a term is to dissuade your potential beneficiaries from bringing a frivolous lawsuit. Read more about what these clauses are, how they work, and how they should be used.

What is an In Terrorem Clause?

In terrorem is a Latin phrase that means “to frighten.” The purpose of a no contest clause is to serve as a deterrent to lawsuits brought by a person’s unhappy beneficiaries against his estate. Basically, if an heir challenges his inheritance and loses, he will be disinherited completely and receive nothing from the estate at all!

While this all or nothing approach seems harsh, the policy behind these clauses is to minimize selfish bickering between dissatisfied beneficiaries and the estate while also reducing the need for costly and time-consuming litigation. The United States Supreme Court upheld the use of no contest clauses in Smithsonian Institution v. Meech. In this case, the testator – the creator of a will – left the majority of his estate to the Smithsonian Museum and only a few token gifts to his other relatives. When a suit was brought by these relatives alleging that the gift to the Smithsonian was improper, the Supreme Court did not agree. It found that a person cannot receive a gift from a will while simultaneously challenging its provisions. Further, such a clause preserves the testator’s true intentions and donative intent, especially now that the person is not here anyore to speak for himself.
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Breaking through Deadlock! Possible tie breaking mechanisms for business and estate planning purposes


As the old saying goes, “Two heads are better than one.” There are many great reasons to have multiple people involved when making decisions for your organization or even when administering your estate. However, it must be accepted that no two individuals will always agree on everything.

Whether these people area acting as co-executors for an estate, members in a limited liability company, or partners in a partnership, it is essential that a procedure for resolving deadlocks and tie votes is included in the underlying documents. Read below for a summary of possible tie breaking mechanisms that you can use.

A. One Person as the Controlling Vote

When there are an even number of decision makers, one of these people can be designated as the controlling vote. Such power should usually be provided to the highest-ranking member or partner or perhaps the one who has made the greatest financial contribution to the organization. For estate planning situations with family members, perhaps the oldest person could serve as such vote.

However, allowing one person to serve as the tie breaker can lead to an imbalance of power and make the other members or agents feel that they lack true control as they could possibly be out voted on many major decisions. With just two people serving, this would definitely not be the best tie-breaking procedure.
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Dividing the Family Jewels: How to pass along your most personal belongings


When most people first start working on their estate plan, they focus on their biggest assets such as their home, rental properties, retirement accounts, and other financial investments. However, sometimes the most important items to your family members are those with the most sentimental value: your grandmother’s wedding ring, your father’s watch, family photo albums, your favorite painting, an antique hunting rifle. Things such as these have significant sentimental value associated with them, which can make them valuable keepsakes for your children and other heirs.

A will in Virginia should cover these assets in detail. The use of a broad residuary clause will pass these items in large general shares. However, you are then placing the burden on your executor or trustee to divide these items equally amongst your beneficiaries. Read below on some potential techniques to reduce conflict and ensure that your family heirlooms go to those who will appreciate them the most.

Tangible Personal Property Memorandum

One of the best ways to pass along such keepsakes is the use of a Tangible Personal Property Memorandum. Under Virginia law, a separate writing can be incorporated into your will listing these items and their intended beneficiaries. This document does not have to be prepared at the same time you sign your will. In fact, you can create it after your will has been signed and continually update it as you need to without necessarily having to consult with an attorney.
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Why You Need Powers of Attorney and an Advanced Medical Directive

Estate Planning is more than just “death and taxes,” additional steps should be taken to fully protect you and your estate. For all estate plans prepared by K.M. Khan Law, a client is also provided with two additional documents: a Durable Financial Power of Attorney and a Healthcare Power of Attorney with an Advanced Medical Directive. Although the hope is that these documents will never have to be utilized, they are absolutely necessary to have complete and thorough protection for your estate.

Durable Financial Power of Attorney

The primary reason to have a Durable Financial Power of Attorney (POA) is to avoid the need for a guardianship and conservatorship proceeding, which can be a truly heart-wrenching affair. Your family and loved ones must ask the court to judge you to be mentally insufficient and physically incapable of handling your own affairs; a public hearing for an incredibly private matter. Once this determination has been made, a guardian at litem must be hired or appointed by the court. This person is then paid from the property and proceeds of your estate thereby reducing what may be available for your designated beneficiaries at your passing.

By creating your own POA when you are of sound mind and fully cognizant, you choose the individual you would like to have manage your affairs rather than have the court decide for you. You may also set this person’s compensation, if any is owed, instead of relying on the rates charged by a professional, such as an attorney, or under the fee schedule approved by the court.
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Lessons from The Sterling Family Trust: When can a trustee be removed?

One of the biggest news stories of this summer was the Donald Sterling fiasco. Mr. Sterling is the former owner of the Los Angeles Clippers, a professional basketball team. The Clippers are actually owned by a trust, the Sterling Family Trust, of which Mr. Sterling was the trustee and the beneficiary. This means that while the trust was created for his benefit, he was still responsible for properly managing its assets on his behalf as well as other beneficiaries, such as his wife.

As mentioned on the Estate Planning Section, a trustee is a fiduciary agent. This means there is a duty on this person to care for the trust assets in a responsible, prudent, and effective fashion. Basically, the trustee must not be wasteful or neglect to manage the trust. Even when the same person, such as Mr. Sterling, serves as the trustee and primary beneficiary of a trust, the law requires that this person still fulfill his fiduciary responsibilities. This is because trusts are created for the benefit of certain individuals (i.e. the beneficiaries) and the trustee is merely “holding this property in trust” on their behalf.
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Will or a Trust: Which is better for your situation?

Many people have heard of a “will” and a “trust,” but are unsure which estate planning device would be best for them and their needs. Both serve the same general purpose, the distribution of your assets in an organized and efficient manner to your loved ones. However, each document has certain advantages and disadvantages. Keep reading to see the key differences between these two estate planning options and what considerations you should take into account when deciding between the two.

Administrative Effects

A will is only effective upon your passing. This means that whatever gifts you have provided for in your will do not take effect until you have actually passed away. Issues arise when property is left to someone in the will, but is then actually given or sold during the will maker’s lifetime. Such a transaction is an abatement; the property is no longer covered by the distribution scheme of your will.

On the other hand, a revocable living trust is created during your lifetime. As soon as you sign the trust document, it is effective. Therefore, to take full advantage of your trust, you must transfer your property into it such as your personal residence, savings accounts, and other significant assets.
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