Settling a Will Contest in New York: How Settlements Work and What They Must Cover

Most will contests in New York end with a signature, not a verdict. The parties agree on who receives what, the agreement is written up as a stipulation, the court signs off, and the estate is distributed. A settlement that is done well closes the dispute permanently. One that is done badly produces a second dispute about the first. Since 2008 we have negotiated and drafted will contest settlements in the Surrogate's Courts of New York City, Nassau, Suffolk and Westchester, and this page explains when they happen, how they work, what a good agreement covers, and the mistakes we see most often.

Why most contests settle

A will contest is expensive, slow and uncertain for both sides, and the uncertainty is not symmetrical. The objectant carries the burden of proof on undue influence and fraud, the grounds most often pleaded, and must prove them largely by circumstantial evidence. The proponent carries the burden on due execution and capacity, and is usually spending the estate's money to defend the will, which means every month of litigation reduces what the winner eventually collects. A jury may take a different view of the family than either side expects. A trial date in a busy court may be two or three years away. Somewhere in that arithmetic, both sides usually conclude that a certain result now is worth more than a possible result later. We discuss the odds and the expense on our pages on the chances of contesting a will and winning and how much it costs to contest a will.

When settlement talks happen

There are four moments when contests tend to settle.

• After the SCPA 1404 examinations. Once the attesting witnesses and the drafting attorney have testified, both sides know roughly what the case looks like. An objectant who has learned that the execution was supervised by an experienced lawyer, and that the decedent gave coherent reasons for the will, has a reason to talk. A proponent who has learned that the drafting attorney never met the decedent alone has one too. Many cases settle before objections are ever filed. Our page on SCPA 1404 examinations explains that stage.
• After the key depositions. When the principal beneficiary, the caregiver, or the treating physician has been deposed, the picture sharpens further.
• At the court's pre-trial conference. Surrogate's Courts hold settlement conferences before a court attorney-referee or the Surrogate, and a judge's frank assessment of both sides' cases is often what moves them.
• On the eve of trial. Some cases settle only when the trial date is real and the witnesses have been subpoenaed.

The mechanics

A will contest settlement takes the form of a stipulation of settlement. It is signed by every party whose interest is affected, including the proponent, the objectants, any beneficiary whose share changes, and the guardian ad litem for any party under disability. It is filed with the court, and in most cases the court "so-orders" it, which makes it both a contract among the parties and an order of the court. The stipulation then drives the decree: the court admits the will and directs distribution in accordance with the stipulation, or admits the will as modified, or denies probate and directs distribution under intestacy as adjusted by the agreement.

When court approval is required

The parties can settle their own interests as they wish. They cannot settle anyone else's. Court approval is required whenever the settlement affects the share of a person under disability: a minor, an incapacitated adult, an unknown or unlocated heir, or an unborn or unascertained beneficiary. The guardian ad litem for that person reports to the court on whether the settlement is in the ward's interest, and the court decides. A settlement that purports to bind a ward without the court's approval is not binding on the ward, and the ward, or a later guardian, can reopen it. Our page on the guardian ad litem describes that process.

The Attorney General

Where a will leaves anything to a charity, the Attorney General of New York represents the charitable beneficiaries and must be cited in the probate proceeding. A settlement that reduces or eliminates a charitable gift requires the Attorney General's consent or, failing that, the court's approval over the Attorney General's objection. When a charity is a beneficiary, we bring the Attorney General's office into the discussion early rather than presenting it with a signed agreement.

What a good agreement covers

A stipulation that says only "the objectant receives $200,000 and withdraws the objections" is an invitation to further litigation. The agreement should answer every question that will come up when the estate is distributed.

• Who receives what. Stated in dollar amounts, fractions of the net estate, or specific assets, with a method for valuing assets that are not cash.
• The status of the will. Whether the will is admitted and the stipulation carries out the distribution, whether the will is admitted as modified by the stipulation, or whether probate is denied and the estate passes by intestacy as adjusted.
• Who serves as fiduciary. Whether the nominated executor serves, whether an objectant becomes a co-fiduciary, and whether commissions are waived or reduced.
• Attorneys' fees. Who pays whose lawyers, and whether fees come off the top of the estate before division or out of individual shares.
• Specific assets. The house, the business, the apartment, the jewelry and the car. Whether the house is sold or transferred to one party at a stated value, who lives there until then, who pays the carrying costs, and who decides on the broker and the price.
• Releases. Mutual general releases among all parties, including releases of claims relating to lifetime transfers, joint accounts, and the fiduciary's conduct to date.
• Withdrawal of objections and dismissal of related proceedings. The objections are withdrawn with prejudice, and any turnover proceeding, accounting objections, or Article 81 or Supreme Court action arising from the same facts is discontinued.
• Non-probate assets. Whether any life insurance, retirement account, joint account or transfer-on-death account is part of the deal, and if so, who holds it and how it is treated in the division.
• Tax allocation. How estate taxes and income taxes on estate income are apportioned among the shares, especially where one party receives specific assets and another receives cash.
• Indemnification. Who bears the risk of unknown creditors, later-discovered assets, or later tax adjustments.
• Non-disparagement and confidentiality. As discussed below, with realistic limits.

Tax consequences

A will contest settlement changes who receives the estate, and the tax law has to decide whether to respect the change. The general principle is that amounts passing under a bona fide settlement of a genuine dispute over the will are treated, for estate tax purposes, as passing under the will or by intestacy, in the amounts the settlement provides. The estate's marital deduction and charitable deduction are computed on the basis of what the spouse or charity actually receives under the settlement, provided the dispute was real and the settlement reflects the parties' relative positions in good faith.

The qualification matters. If one beneficiary simply hands part of their share to a relative who had no legitimate claim, dressed up as a "settlement," the transfer is not a settlement of a dispute; it is a gift by the person who gave up value, with the gift tax consequences that follow, and the estate's deductions are computed as if the transfer had not happened. The line between a compromise and a gift is drawn by looking at whether the claim being settled had substance and whether the terms bear a reasonable relationship to it.

Two further points. The estate tax return is due nine months after death whether or not the contest has settled; an extension to file is available, but the tax is due at nine months and interest runs on what is unpaid. And income tax on estate income continues to accrue during the contest, so a settlement that allocates the estate's assets should also allocate the income earned on them and the tax due on that income.

Mediation

Several Surrogate's Courts in the New York City area operate mediation programs, and some refer contested probate matters to mediation as a matter of course. Private mediation, before a retired Surrogate or an experienced trusts and estates lawyer, is also common and can be arranged at any stage. Mediation works best after the SCPA 1404 examinations, when both sides have a realistic view of the evidence.

Settling when the will has a no-contest clause

A no-contest clause forfeits the gift of a beneficiary who contests the will and loses. A settlement is not a loss. When the parties resolve the contest by agreement, the beneficiaries who would have benefited from a forfeiture are parties to that agreement and give up the forfeiture as part of it. The stipulation should say so expressly: that the proponent and all beneficiaries waive any claim that the objectant's conduct triggered the clause, and that the decree admitting the will will provide for distribution under the stipulation notwithstanding the clause. A beneficiary who was examining the will under the safe harbor for SCPA 1404 examinations, and settles before filing objections, has never triggered the clause at all. Our page on no-contest clauses explains the safe harbors.

Confidentiality and its limits

Parties often want the terms kept private. The difficulty is that Surrogate's Court files are public records. The will, the petition, the objections, and the decree can be read by anyone at the clerk's office. A stipulation filed with the court is likewise public unless the court seals it, which courts do rarely and only on a showing of good cause beyond the parties' preference. What can be kept confidential is the parties' side agreement about matters the court does not need to see, and their agreement not to discuss the terms with third parties. We draft confidentiality and non-disparagement provisions with those limits in mind, so that a party is not promising something the public record will contradict.

Enforcing a settlement

A stipulation of settlement is a contract, and once the court so-orders it, it is also an order of the court. A party who refuses to sign the deed, deliver the release, or pay the agreed sum can be compelled by motion in the Surrogate's Court, without starting a new action, and the court can enforce its order by contempt where necessary.

Common mistakes

• Settling before the SCPA 1404 examinations. Neither side knows the value of the case until the witnesses have testified. An objectant who settles early sells cheap; a proponent who settles early may be paying for nothing.
• Settling without the guardian ad litem. A deal that leaves out the guardian, or the Attorney General where a charity is involved, is not a deal. The court will not approve it and the excluded party can reopen it.
• Ignoring non-probate assets. If the same influence that produced the will also changed the beneficiary on a retirement account, and the settlement says nothing about the account, the objectant has released the will contest and kept a fight that the release may now cover.
• Leaving fee allocation open. "Fees to be determined by the court" means another round of litigation.
• Not getting releases from everyone. A beneficiary who did not sign is not bound, and a distributee who was never cited is not bound by the decree either.

How we can help

We negotiate from evidence, which means we settle after the examinations and not before, and we draft stipulations that answer the questions the estate will face at distribution rather than leaving them for a second proceeding. Whether you are an objectant deciding what a fair number is, a proponent deciding what the will is worth defending, or a fiduciary trying to close an estate that has been stuck for years, call us at 212-233-1233 or email [email protected].