OCTOBER 1, 2012 VOLUME 19 NUMBER 36
From time to time we have written about what lawyers usually call "in terrorem" provisions in wills and trusts. They are perhaps better known as "no-contest" clauses, and they are intended to prevent will (or trust) contests after the death of the signer. Typically, they say something like: "if anyone contests this will, he or she will be treated as having predeceased me." In other words, if your father's will leaves you half as much as your brother receives, and you file a court petition saying you think he was incompetent when he signed that will, you will get nothing at all. It can be a strong incentive not to challenge the will.
A recent Arizona Court of Appeals decision raised a new wrinkle on challenges to in terrorem provisions. Partly, that is because the actual provision was so much broader than the short and simple language we spell out above.
Thomas J. Stewart's will and trust disinherited one of his adult children. It also contained a detailed in terrorem provision. That provision said that if anyone challenged his will or trust in any of a number of listed ways, they would be treated as having died before him -- in other words, they would be disinherited. It also penalized anyone who "cooperates or aids in any action described in the preceding provisions of this paragraph with any other person, regardless of whether that person is himself or herself subject to this article."
The disinherited son filed a contest of both the will and trust. Why would he do that in face of the in terrorem provision? Because he had nothing to lose -- he had already been disinherited. But his challenge to the provisions of the two documents was a little different. He argued that they penalized any other family member who might tell him that they thought his father was incapacitated or subject to undue influence. That would be the case even if they genuinely thought Mr. Stewart's will or trust was questionable.
The probate court agreed with the disinherited son's argument, and ruled that the broad in terrorem provision violated Arizona's public policy in favor of court review when there is a question of improper procurement of a will or trust. Consequently, the trial judge invalidated Mr. Stewart's in terrorem provision.
The disinherited son later settled his claim with the estate (the terms are not described in the Court's opinion), and an order was presented to the probate judge for signing. Since it was no longer relevant to the determination, the estate's personal representative and trustee argued that the judge should strike the language invalidating thein terrorem provisions. The probate judge declined, and the estate appealed.
The Arizona Court of Appeals ruled that the probate court was wrong to invalidate the provision in the first place. Yes, there is a public policy consideration in favor of reasonable access to the legal system, said the appellate court. But there is also a public policy in favor of discouraging will or trust contests, and avoiding waste of estate resources on contested proceedings. The key, said the appellate court, is that Arizona's in terrorem statute already invalidates such provisions if the contestant has probable cause to initiate the proceeding. Matter of Estate of Stewart, September 27, 2012.
But what does that mean in the real world of will and trust contests? Are Mr. Stewart's other heirs at risk of losing their inheritance if they talk to the disinherited son? Wouldn't it be too ironic if he settled his claim (and got some share of his potential inheritance returned) and then a brother, sister or other heir lost their share because they had sympathized with him? Would the mere fact that the estate settled with the disinherited son provide enough "probable cause" to deter any attempted disinheritance of a cooperating heir? These are all questions left unanswered by the appellate court's decision.
On the other side of the coin, suppose you want to sign a bullet-proof will or trust (that is, one that simply will not be challenged -- regardless of the circumstances). Does Mr. Stewart's example provide any guidance on how to do that? Perhaps, but we might make a few observations:
- Obviously, the in terrorem clauses in his will and trust were not completely effective. We don't know how much his son received, but he was not completely disinherited.
- Mr. Stewart did not follow one common tactic: leave a lesser share to the disfavored child and couple that with an in terrorem provision. In other words, leave that son, say, $10,000, or half the share he would otherwise get, or some other amount -- and provide that he will lose that if he challenges the documents. Maybe that would have deterred the contesting son in this case, but if the estate was large it might not have worked any better. Perhaps the settlement amount he actually received turned out to be less than such an arrangement might provided.
- If you want to really discourage any family member's involvement in a contest, the broad language in Mr. Stewart's will and trust might be a model. If you want to encourage family harmony among those who will receive a share of your estate, it might not be -- the result in this case now potentially pits the heirs who do inherit money against the estate (if they gave any comfort to the disinherited son, that is).
- The fact that this case -- with very strong language and careful planning -- resulted in a contested probate proceeding and an appellate court opinion indicates that it can be pretty difficult to prevent contests in every circumstance.