What is a 'Non-Contestability Clause'

A non-contestability clause is a provision in a person's will that threatens to redistribute inheritance if beneficiaries contest the will.

BREAKING DOWN 'Non-Contestability Clause'

Non-contestability clauses in wills intend to keep order during the settlement of an estate by punishing heirs who attempt to contest clauses in wills. The effectiveness of these measures can be limited, as courts typically will allow beneficiaries to contest wills despite the presence of a non-contestability clause. Wills are part of the probate process and therefore subject to state law. Some states, in turn, refuse to enforce non-contestability clauses. In those states, a court decides whether the party contesting the will has a legal case. If they do not, these states require the courts to proceed with the will's instructions without redistributions governed by non-contestability clauses.

Other states enforce non-contestability clauses in cases where the courts deem the contest legitimate, so as not to discourage potential heirs from exercising their legal rights.

Individuals involved in estate planning and seeking an alternative to ensure their estates get distributed as they desire might look toward the use of a trust. Drawing up a trust can provide more protection and a simpler vehicle for distributing an estate's holdings. For one thing, assets placed in trust typically bypass the probate  process entirely.

To ensure more complete protection, an individual could pair a trust with a pour-over will, which simply moves any remaining assets in the estate into an existing trust. An appointed trustee will usually ensure that the trust's assets get distributed appropriately, as laid out in the trust documents.

Contestability Periods in Life Insurance

In the context of life insurance, contestability refers to an insurance company's right to refuse to pay out on a claim due to inaccuracies in an insurance application. Most policies maintain a window during which the insurance company can deny a claim if it finds a material falsehood in an application, whether that falsehood has anything to do with the cause of death or not. The rationale behind such a move suggests material misrepresentations on a life insurance application may cause an inaccurate premium or death benefit calculation. Most contestability periods last between one and two years after a policy goes into effect, however lapses caused by nonpayment of premiums may cause a new contestability period to begin. If an individual dies during the contestability period, the ultimate payment of a death benefit may depend upon whether or not the insurance company finds any issues with the application. Insurance companies that find material misinformation can also make adjustments to premiums or to the death benefit.

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