Individuals undertake Estate Planning not only to ensure the smooth transition of their assets upon their death, but also to prevent certain beneficiaries from inheriting or limiting the gift or bequest to a beneficiary. A will or trust can limit the amount given to a beneficiary, for example, by providing one child with a smaller portion of the overall estate than another, or can impose restrictions upon the gift or bequest, for example, by imposing a trust for the beneficiary’s life and naming a third party as trustee. The decision about whether to leave a beneficiary any amount requires careful consideration. By leaving a token amount of say $1, the beneficiary has nothing to lose by contesting thereby undercutting the effectiveness of the no contest clause. Leaving the beneficiary a greater amount, say $50,000, rather than the $1 million that they would have received if they were receiving an equal distribution, may fund litigation, but it may also cause the beneficiary to think twice before initiating a lawsuit. In conjunction with the limitations on the gift or bequest, Estate Planning attorneys often include an “in terrorem” or no contest clause to further evidence the testator or grantor’s intent. The use of an in terrorem clause in a Will or Trust protects the intentions of the testator or grantor from attack by the disgruntled beneficiary by completely disinheriting the beneficiary who challenges the terms of a Will or Trust. These clauses do not work the same in every state and some states impose additional requirements before disinheriting the beneficiary. This article explores the enforceability of these clauses in the various states along with one state’s middle-of-the-road approach.
Importantly, neither Florida nor Indiana recognizes in terrorem clauses, but all other states acknowledge the use of the no contest clause in varying degrees. Most states construe a no contest clause strictly and narrowly and will enforce a no contest clause only when the beneficiary’s conduct falls into a category prohibited by the no contest clause. New Hampshire departs from this general rule and its statute provides expansive construction and interpretation of the no contest clause to ensure fulfillment of the testator’s intent as expressed in the Will. New Hampshire has an identical statute applicable to Trusts.
Most of the states that accept the use of no contest clauses, like Arizona, Colorado, Michigan, Minnesota, and New Jersey, have adopted the Uniform Probate Code rule that enforces the clause unless the contestant had probable cause to initiate the proceeding. Each state sets a different bar for determination of probable cause. Alaska statutes indicate that an in terrorem clause in a Will contest is unenforceable; however, the same cannot be said for an in terrorem clause in a Trust contest. Alaska statutes specifically indicate that the in terrorem clause purporting to penalize a beneficiary by charging such beneficiary’s interest in the trust, or any other way for instituting a proceeding to challenge the acts of a trustee or initiating any other proceedings related to the trust is enforceable even if probable cause exists for instituting the proceedings.
Arkansas and Illinois enforce an in terrorem clause unless the contestant bases the Will contest on good faith. Other states like Iowa, North Carolina, and Tennessee require both good faith and just cause for the contest otherwise the no contest clause will apply to disinherit the contesting beneficiary. Still other states, like California, Delaware, and New York have more complex and comprehensive rules regarding the enforceability of in terrorem clauses. Most of the states that have adopted the use of in terrorem clauses in Wills do the same for Trusts. Other than Alaska, no state court or legislature has expressly held that the rule applicable to Wills does not apply equally to Trusts.
Several other states like Kentucky, Louisiana, Missouri, Ohio, and Virginia enforce the in terrorem cause without regard to probable cause or good faith. Vermont has no applicable statutes on the enforceability of no contest clauses. Alabama courts have not expressly ruled on the enforceability of the clauses, although several cases have recognized the enforceability of such clauses generally while holding that such clauses were unenforceable in the specific circumstances before the court.
The harsh result of forfeiture of the gift or bequest under a Will or Trust chills potential litigants, the intended result. If the beneficiary seeks only to have the court construe the terms or a provision of the document, that alone does not work as a forfeiture. Interestingly, in 2014 Missouri enacted legislation that allowed a potential contestant to “test the water” before moving forward with a lawsuit that would trigger an in terrorem clause. Under the applicable statute, an interested party may petition the court for an interlocutory determination whether the proposed or alternative pleading will trigger a forfeiture. This legislation gave potential litigants a clear path to the courthouse by eliminating the need to plead in the alternative, as they would have had to do before the enactment of the statute. Prior to the statute’s enactment, beneficiaries would ask the court to rule on whether the counts in their proposed pleading would trigger the clause. Once the beneficiary received that ruling, then the beneficiary would ask the court to rule on whether the clause was enforceable. That process required at least two rulings before getting to the substantive claims, the opposite of judicial economy. Missouri appellate courts have addressed the statute a mere five times in the eights years since its passage which underscores the chilling effect of these clauses.
While Missouri clearly leads the way in no contest clause litigation, other states may follow suit. Even in states like Florida and Indiana that do not recognize no contest clauses, use of the clause may chill litigation and ensure that the testator or grantor’s intended plan of distribution stands. No matter your jurisdiction, it’s vital to understand these complex and evolving rules. While many states share similar statutes, they are not uniform.
Tereina Stidd, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
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