This blog post is in response to a recent April 2019 California case dealing with disgruntled siblings and an “in terrorem” (or no-contest) clause in their late mother’s revocable trust document. I use the California case to make the following broader comments for this blog post and tie my comments to a Georgia point.
An in terrorem clause (no-contest clause) in a Will or trust document is to prevent beneficiaries from raising issues as to the Will or trust in order, in most cases, to try and increase their share. The provisions under Georgia law for no-contest clauses are under O.C.G.A. Section 53-4-68 (for Wills) and Section 53-12-22 (for trusts).
An example of a no-contest clause in a Will is:
“If any beneficiary, alone or along with any other person or persons, directly or indirectly, contests or initiates proceedings to contest this Will in any court with a challenge to its validity of all or any part of my Will or in any manner, attacks or seeks to impair or invalidate any of the provisions of my Will or prevent any provision of my Will from being carried out in accordance with its terms, that contesting beneficiary shall be deemed to have predeceased me and as a result shall forfeit his or her interest under this Will in its entirety with his or her forfeited share passing to my other children, per stripes, as though the contesting beneficiary and his or her descendants all predeceased me.”
This blog post is not for the purpose of an extensive discussion about the design and use of a no-contest clause. But, rather, it helps illustrate that no-contest clauses are not just simply boilerplate provisions that one can, or should, without careful thought merely cut-and-paste into a Will or trust.
Below are a couple broader comments as to no-contest clauses:
I start with reference to a recent 2019 California court opinion dealing with a no-contest clause. This case has an extremely interesting and surprising twist that one of the litigious sisters likely never expected, to her detriment. This case is Key v. Tyler, 2019 Cal. App. LEXIS 358 (April 19, 2019). Click here for a copy. The core facts are that three adult sisters are beneficiaries of their deceased parents’ 1999 family trust. The family trust essentially provides for an equal split among the three sisters after their parents’ deaths. As of January 2006, the family trust was worth over $72 million. Lawyer-sister Tyler was the trustee.
A 2007 amendment to the 1999 family trust surfaced after the mother’s 2011 death (the mother was the second parent to die). After their mother’s death, sister Key asserted that her lawyer-sister Tyler had unduly influenced their mother in 2007 to amend the 1999 family trust. The 2007 trust amendment was apparently orchestrated by Tyler and resulted in Tyler increasing her own trust share substantially in excess of her other two sisters (including Key). The 1999 family trust and 2007 amendment each included a no-contest clause.
Sister Key, after the mother’s death, filed a California court action and asserted the 2007 trust amendment was the result of undue influence over their mother by lawyer-sister Tyler . The California court agreed with sister Key, with the result that the 2007 trust amendment was essentially disregarded. Although this California opinion is rich with an abundance of procedural details, factors, concepts, and other elements in this sister- v.-sister litigation, I make only the following three comments stemming from this California case (my knowledge of the facts in this case are based solely on information in the court opinion):
One. This point centers on the 1999 family trust and the 2007 trust amendment, each having a no-contest clause. One might reasonably ask: With the trust document having a no-contest clause, how was sister Key (the non-lawyer sister) able to attack the 2007 trust amendment, without triggering the clause against herself (Key)?
The reason is that California law, as with some other states (but not Georgia), has an exception to the challenge to a Will or trust with a no-contest clause, if the person making the challenge can show probable cause at the time of filing the challenge, such as probable cause of undue influence, or mental incapacity, etc.
In other words, without probable cause a person cannot simply file a challenge to a no-contest clause Will or trust and hope during the discovery phase of the litigation to luck-up or stumble across evidence of undue influence, or mental incapacity, etc. Probable cause up front reduces fishing-game litigation. Absent probable cause, the person making the challenge to the Will or trust also risks losing, with the result of being penalized by the no-contest clause.
Two. This next move in this litigation by sister Key is what greatly sparked my interest in this California case. Here it is: After sister Key successfully challenged and obtained the set-aside of their mother’s 2007 trust amendment, Key then filed a petition to enforce — against her lawyer-sister Tyler — the no-contest clause as to the 1999 family trust. This is the backfire.
Here the reader might say “Wait a minute, it was sister Key who challenged the 2007 trust amendment. Lawyer-sister Tyler never asserted any challenge. So, why now is lawyer-sister Tyler facing loss of her inheritance based on her (Tyler’s) violation of the no-contest clause? “
There are two primary reasons. First, the California court concluded sister Key had sufficient probable cause of undue influence to file her challenge to the 2007 amendment, even with the no-contest clause. The probable cause exception under California law provided an exception for Key to the trust amendment’s no-contest clause. Second, and this is the part of the California court opinion that really grabs my interest. The court, in concluding sister Key can seek to enforce the no-contest clause against Tyler, states:
“By [lawyer-sister] Tyler obtaining the 2007 Amendment through undue influence and then defending that amendment in court, Tyler sought to ‘impair’ and ‘invalidate’ the provisions of the original Trust that the 2007 Amendment purported to replace. The No-Contest Clause therefore disinherits Tyler if it is enforceable against her.”
2019 Cal. App. LEXIS, *29.
I assume lawyer-sister Tyler was completely blindsided by now finding herself the subject of a possible no-contest clause violation, and never for a moment considered that her court fight as trustee to defend and uphold the 2007 trust amendment would (or could) be the basis of Tyler herself violating the no-contest clause. Tyler now stands to lose her share of the trust if the court ultimately concludes Tyler violated the no-contest clause [the court has not yet arrived at a conclusion].
Three. This final point ties my Georgia discussion to the above California case. Georgia does not have a probable cause exception that allows a beneficiary with probable cause to challenge a no-contest clause Will or trust. My view is that Georgia (and all other states) needs a probable cause exception. This is up to the legislature.
Here also is my concern, merely as an example, of there being no probable cause exception in Georgia. Assume a family friend, business associate, or even a lawyer, becomes a close friend of an elderly widow or widower. And that person persuades the elderly person to change his or her Will to include him or her as a substantial beneficiary (or gets the elderly person to add his or her church or other charitable institution as a substantial beneficiary). Assume also that person persuades the elderly person to include a strong, no-contest clause in their Will or trust.
This could be a tragedy and, in my view, would prevent another beneficiary or family member from challenging a Will or trust that now benefits the family friend, business associate, or lawyer, even if the challenging beneficiary has probable cause. The person influencing the elderly person, therefore, shields himself or herself by influencing the person to include the no-contest clause.
My final general point is to make sure you know what documents your elderly parents have in place, and whether they are making changes, influenced by others, etc. Don’t end up with no options to challenge their situation where someone influences your parents to include him or her in the Will or trust, and also influences your parents to include a strong no-contest clause. This person may likely end up with your inheritance, unscathed.
One last comment for readers who wish to read the attached California court opinion. That is, the court opinion provides a great deal of discussion about this California sister case being a SLAPP case [“Strategic Litigation Against Public Participation”]. SLAPP is essentially a procedural speed-up option available for certain litigation cases, that I also find is an extremely interesting, evolving court development. I will write a blog post soon about what SLAPP is and why I find it a compelling and positive development in litigation. [California has a much broader range of SLAPP options compared to Georgia.]