The No Contest Clause: Protecting your estate from unhappy heirs

by Kaamil Khan

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Attorneys love fancy Latin terms. At the end of many wills and trusts, you will usually find a section we proudly call the In Terrorem Provision. Most people will generally refer to such a provision as a “no contest” clause. The intent behind such a term is to dissuade your potential beneficiaries from bringing a frivolous lawsuit. Read more about what these clauses are, how they work, and how they should be used.

What is an In Terrorem Clause?

In terrorem is a Latin phrase that means “to frighten.” The purpose of a no contest clause is to serve as a deterrent to lawsuits brought by a person’s unhappy beneficiaries against his estate. Basically, if an heir challenges his inheritance and loses, he will be disinherited completely and receive nothing from the estate at all!

While this all or nothing approach seems harsh, the policy behind these clauses is to minimize selfish bickering between dissatisfied beneficiaries and the estate while also reducing the need for costly and time-consuming litigation. The United States Supreme Court upheld the use of no contest clauses in Smithsonian Institution v. Meech. In this case, the testator – the creator of a will – left the majority of his estate to the Smithsonian Museum and only a few token gifts to his other relatives. When a suit was brought by these relatives alleging that the gift to the Smithsonian was improper, the Supreme Court did not agree. It found that a person cannot receive a gift from a will while simultaneously challenging its provisions. Further, such a clause preserves the testator’s true intentions and donative intent, especially now that the person is not here anyore to speak for himself.

A more recent case showing how powerful these clauses can be is the estate of the late Samuel A. Tamposi, Sr., a real estate developer who owned an interest in the Boston Red Sox. Mr. Tamposi created several trusts for his children and grandchildren. His daughter, Betty Tamposi, brought a lawsuit against her brothers who were the trustees of her trust. She argued that they were mismanaging the trust assets and not paying her what she was owed, approximately $2 million. After a bitter and prolonged fight, the Massachusetts court ruled against her. It found that even though Ms. Tamposi was not bringing a challenge regarding her potential inheritance, her lawsuit was not filed in good faith nor for a valid purpose. It further ruled that her suit violated the no contest provision of her father’s trust; she would not be receiving any more of her inheritance and was ordered to pay back whatever she had already received. A challenge over $2 million resulted in Ms. Tamposi losing out on potentially $17 million, an incredible result!

Virginia Law Regarding No Contest Clauses

In Virginia, these types of clauses are strictly upheld. The Virginia Supreme Court in Womble v. Gunter stated that compelling reasons exist for doing so. It preserves the testator’s right to dispose of his property how he sees fit. Such clauses also prevent private family drama from being public record.

In Keener v. Keener, the Court extended this strict enforcement of no contest clauses in a will to trusts as well. However, in an ironic twist, while the Court in Keener reiterated the power such provisions can hold, it did not find that the heir’s actions in that case actually rose to the level of a contested challenge against the trust. The Virginia Supreme Court has also found that a suit seeking to clarify the meaning of language in a will is not a “contest” under an in terrorem clause and therefore will not result in the disinheritance of such a person.

These cases show that while Virginia believes strongly in the right of a person to distribute his property as he or she wishes, Virginia courts will look closely at the underlying facts to ensure that such a lawsuit actually does trigger these forfeiture provisions. Filing a suit by itself is not enough to invoke the no contest clause.

Using a No Contest Clause

To properly use these types of clauses in your estate plan, you must take certain factors into account. First, a no contest clause will only have teeth if the challenging beneficiary has something lose. If this person has been left nothing at all, then he or she has no disincentive to filing a lawsuit against the will or trust. If you distrust a certain potential heir, consider leaving behind a small token gift for this person so that he or she will be dissuaded from filing a lawsuit and delaying the distributions you have left for the rest of your family.

If you are planning on disinheriting someone completely from your estate plan, you should spell out the reasons why you are doing so. Leaving someone out of your plan usually will result in a lawsuit stating that you lacked “testamentary capacity,” you were unaware of what you were doing with your property or who you were leaving it for. If your will is challenged for being invalid, having an explanation will show the court that you understood what you did. A frank discussion with this potential heir should also be had during your lifetime rather than leaving something like this as a surprise after your passing.

Next, especially if you move from Virginia or own property in other states, you must be aware of the law regarding these types of clauses in that state. Certain states, such as Florida and Indiana, do not allow these types of clauses in estate planning documents in those states. Other states will look to see if the lawsuit was brought in “good faith” by the challenging beneficiary. This states have a policy that provides some protection for the unhappy heir before the person is disinherited completely. If you own a vacation home in another state or change your residence from Virginia, have an estate planning lawyer review your Virginia will or trust to be sure that it complies with that state’s law.

Conclusion

A no contest clause is a powerful way to protect your legacy and wishes. However, it must be used properly and drafted carefully to ensure that one of your beneficiaries is not accidentally disinherited. Care must also be taken when using it especially if you own property outside of Virginia.

If you have a concern about distributing your estate to one of your beneficiaries, contact K.M. Khan Law today.

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