Orphan’s Court Update
July 9, 2013
Publications
When are “No-Contest” Clauses Enforceable?
by Elizabeth S. Karnezos
We are often asked about in terrorem clauses or “no-contest” clauses in wills or trusts. Can they be enforced? Under what conditions? Can a contesting party really lose everything? Does a contesting party put anyone else’s rights at risk?
An in terrorem clause is a clause that can invalidate a will or trust if a beneficiary engages in the conduct prohibited by the clause; the conduct generally involves any challenge to a bequest under the document. It essentially makes the bequest conditional – the beneficiary will only receive a gift under the will or trust if he or she doesn’t act contrary to the clause.
Considering the importance of protecting the rights of beneficiaries, are in terrorem clauses enforceable? Generally, yes. Pennsylvania law, however, strikes a balance between respecting the testator’s intent and protecting the rights of beneficiaries and will not enforce in terrorem clauses when the contesting party had “probable cause” to bring the action. While “probable cause” hasn’t been clearly defined, courts will consider the facts available to the party at the time of the contest and evaluate whether the contest was “justified under the circumstances” and “not the mere vexatious act of a disappointed child or next of kin.” Friend’s Estate, 58 A. 853, 854 (Pa. 1904). This longstanding concept is codified in the Probate, Estates and Fiduciaries code:
A provision in a will or trust purporting to penalize an interested person for contesting the will or trust or instituting other proceedings relating to the estate or trust is unenforceable if probable cause exists for instituting proceedings.
20 Pa. C.S. § 2521.
First, a court must determine whether an in terrorem clause applies. To make this determination, a court looks to whether the beneficiary’s conduct falls within the scope of the clause. Only an actual contest to the will or trust will trigger the application of the clause. If a beneficiary seeks to enforce or interpret the terms of the will, an in terrorem clause is not triggered. See, e.g., In re Ervin’s Estate, 79 A.2d 264 (Pa. 1951); Kelly’s Estate, 27 Pa. D. 349 (O.C. Phila. 1918).
If the clause is triggered and a beneficiary is unsuccessful in a challenge to a will or trust, the court must then consider whether the beneficiary had “probable cause” to bring the challenge. Because courts are generally reluctant to enforce forfeiture clauses, a no-contest clause will be narrowly construed and enforced only in clear cases. For example, unsubstantiated suspicions of undue influence generally do not pass the “probable cause” test, and an in terrorem clause would likely be upheld. See In re Estate of Simpson, 595 A.2d 94, 100 (Pa. Super. 1991). But an in terrorem clause will generally not be enforced against a beneficiary who has probable cause to challenge a fiduciary’s administration of an estate or trust, such as in cases involving challenges to counsel fees, commissions or other charges, or if the estate or trust has incurred large losses. See Mitchell’s Estate, 20 D. & C. 101 (O.C. Phila 1933). A challenge to fiduciary administration is generally seen as an action in furtherance of the testator’s intent rather than a challenge to the terms of the will or trust.
If enforced, the court will interpret the clause to determine the testator’s intent, and that can mean that anyone who cooperated in the contest, such as the children of the contestant, can be included in the application of the clause, depending on how the clause is written. See, e.g., Simpson, 595 A.2d at 101;Volchok Estate, 25 Fiduc. Rep. 2d 113, 116 (O.C. Montg. 2005).
The unique circumstances of each case will determine whether an in terrorem or “no-contest” clause will be enforced. It is important to determine whether the contesting beneficiary’s conduct will trigger the clause and if so, whether there is probable cause to initiate the contest. These key factors make all the difference in whether it is advisable to contest a will or trust. If you have questions about any of the information in this article, please contact the author or any member of the Orphans’ Court practice group
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ORPHANS’ COURT UPDATE is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.
