Estate Planning: What are Litigation Stop Points?

Are you paying for this? Or your heirs?

To be brief, a Litigation Stop Point (“LSP”) is a provision in your Will, Trust or Power of Attorney that will require court intervention before administration can continue. Most clients who pay substantial amounts of money for their estate plan do not anticipate the LSPs that might be hidden in the documents.

For example, a durable power of attorney might be written to be immediately active when signed by the principal… or it could be a “springing” document which is only active when a judge determines the principal is incapacitated. (The reasons for creating a springing document could be valid, but they could also force unnecessary litigation costs on the heirs or administrators that the principal didn’t want.) In practice, if the power of attorney is only valid after a finding of incapacity, the attorney-in-fact or agent has to file a lawsuit against the principal to have a court determine that the principal can’t manage his or her own affairs…

In the case of a Last Will and Testament, certain provisions could force additional costs beyond those of probate. (FYI – a Will does not avoid probate, rather it operates as a set of formal instructions to the judge in the probate.) One clear example is a Will that requires the creation of a testamentary trust…or language that cannot be accommodated without a trust. For instance, if a Will requires the ongoing management of an asset, a court may require the creation of a trust instrument to accomplish that directive since the probate court is not in the business of managing estates for long periods of time.

Delay, Cost, Stress...

For example, I reviewed a pair of Wills that each required the creation of a testamentary trust. The way the Wills were drafted, each required the probate court to create and fund an individual trust following the deaths of each testator. So add this up:

a.)   Cost of Wills ($1,500);

b.)   Cost of 2 probate actions ($5,000-$7,000);

c.)   Cost of 2 testamentary trusts ($5,000); and

d.)   Cost of funding both trusts ($1,500) plus potential trust administration costs and tax filings, etc.

Total cost ranging from $13,000 to $20,000 when you could accomplish all that with a revocable living trust for less than $5,000… with funding and administration.

In conclusion, your estate documents may include unknown LSPs with unknown consequences. It is simply prudent to have a competent estate planning attorney review your plan to point out the potential provisions that would require court intervention, time and cost.

Curry Andrews, Attorney at Law