In Florida, no-contest clauses -- aka in terrorem clauses -- are void as against public policy, thought to chill citizens' access to the courts for redress. In Washington, D.C., they are strictly enforced. In Illinois, courts say they are enforceable but go to great lengths to find reasons not to do so. California law allows a plaintiff to check the water temperature before jumping in the pool.
Consider the following two recent cases, one out of strict Washington, D.C., and the other from the more forgiving California:
In Washington, D.C.'s Ackerman v. Genevieve Ackerman Family Trust, 908 A.2d 1200 (D.C. App. 2006), the settlor and her husband created and funded similar trusts that would be irrevocable when the first of them died and, when the survivor died, be divided between their son, Stephen J. Ackerman, Jr., and daughter, Mary Frances Abbott. Both trusts named the couple's son-in-law as trustee. The settlor's husband died first. Each trust contained a no-contest clause stating that a contestant's interest in both trusts would be forfeited and the contestant treated as predeceased, if he filed a contest to any of either trust's provisions. The trusts included a residence where the son lived.
After the husband died, the son filed a petition to reform the trust to exclude the residence, contending that the settlors never intended to place the residence in the trust, but rather intended to leave the property directly to him. As the court noted, "This was not a unilateral hope on appellant's part. Before her death, his aunt, who then owned the [residence] . . . jointly with . . . [Genevieve] Ackerman, had voiced her intention to leave it to appellant. Before she created the trust, his mother had stated the same intention."
But the court found no evidence that the residence was improperly included in the trust and so enforced the no-contest clause against the son, causing him to forfeit his entire interest in both trusts.
Of particular note is the fact that the court reached this result notwithstanding the settlor/mother's own testimony that she had misunderstood her attorney's inclusion of the language and that she found the provision to be "inhuman." The court stated that Washington precedent allows for no exceptions to enforcing a no-contest provision.
We can only imagine the strain this ruling put on relations between the Ackerman children.
In sharp contrast, California law provides for a procedure in which a potential contestant may seek a preliminary declaratory judgment as to whether a contemplated action would trigger the no-contest clause. Hearst v. Ganzi, 2006 WL 3720244 (Cal. App. 2d Dist. 2006) illustrates this nicely.
Hearst involves the fate of the fortune of famed yellow newspaper magnate William Randolph Hearst, who died in 1951 at age 88. Three of the Hearst Family Trust's 17 trust income beneficiaries petitioned for a determination as to whether their proposed action against the trustees would amount to a "contest" of their grandfather's will. The three -- William R. Hearst II, Deborah Hearst and Phoebe Hearst Cooke -- alleged that the trustees had breached their fiduciary duty of impartiality by favoring remainder beneficiaries over income beneficiaries. The best known of the heirs, Patricia Hearst Shaw, is both an income and a potential remainder beneficiary. She was not a party to the litigation, but filed an amicus brief supporting her three cousins.
Because the operative document gave the trustees discretion to treat the income and remainder beneficiaries differently, presiding Justice Joan Dempsey Klein, writing for the Court of Appeals, agreed with the trial judge that the proposed action would be a "contest" of the operative document and therefore trigger the no-contest clause. The would-be contestants beat a hasty retreat. No harm, no foul.
What would cause jurisdictions to treat their citizens so differently? The answer probably lies in the competing goals of protecting the testator's or settlor's intent with providing a forum for legitimate complaints. The Uniform Probate Code Section 3-905 states: "A provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings." See also UPC Section 2-517 related to trusts. This position is somewhere in between those of the two cases we've noted here, and likely reflects the stance adopted by the majority of jurisdictions, as more amend their state probate acts with an eye on the UPC for guidance.
Clearly, though, estate planners should stay abreast of their jurisdiction's laws on no-contest clauses and inform clients of the likelihood of enforcement should their documents meet with a challenge.
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