Every once in awhile, there is a case that is worthy of writing
about to help our clients understand their rights and obligations.
In some legal documents, lawyers include language known as a no contest clause or an in terrorem clause. This helps to prevent individuals from contesting wills and trusts, and in many states, these are held to be valid so that if a person does contest, they forfeit and lose their rights under the trust or will. In some states, however, these clauses are not valid, and in some instances, they are valid only if the objector to the will or trust is successful.
A recent case in New Hampshire involves a significant estate, (over $100,000,000,) where the decedent left funds in trust. The trustees had the obligation to invest the funds and make distributions, but at one point, some of the beneficiaries objected to many of the decisions of the trustees, but they ultimately resolved the matter by a mutually agreeable settlement which was filed with the court.
A few months later, one of the disgruntled beneficiaries, who still was not happy, proceeded to bring an action against the trust, attempting to remove the trustees, sue for breach of fiduciary duty, and made other allegations and complaints in her capacity as a beneficiary.
This trust contained a no contest clause, and one of the affirmative defenses and arguments of the defendant trustees was basically that the plaintiff beneficiary would forfeit her share if she contested. After many weeks of hearings with many witnesses, including many nationally recognized legal scholars who testified, the court, in a 50+ page decision, decided that the plaintiff did not have a case and enforced the no contest clause.
The plaintiff in this case was not only prohibited from receiving any further distributions based on the in terrorem clause affirmation by the court, but she was also ordered to reimburse the trust for all of the distributions made to her from the date of the filing of her action, as well as pay all of her own legal fees and costs, which were apparently in the hundreds of thousands of dollars.
It is important, therefore, to be sure that before contesting any case, you read all of the language of all documents, including any amendments or codicils, to determine whether there is the no contest clause. If so, you must make a difficult decision whether to proceed and gamble away your rights in your attempt to void the document, because if you are not successful, the net effects will likely be financially devastating.
Not only did the above plaintiff lose the case, but she had to repay funds received as well as pay all her own costs and expenses. She is now removed as a beneficiary from this trust, thus providing the other beneficiaries with significantly more money.
As unhappy as she may have been with the prior trustees, and for whatever other reasons she brought the action, she certainly would have been better off merely maintaining her status quo as an unhappy beneficiary.
Hyman G. Darling, Esq.
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