Estate planning attorneys frequently insert “no contest clauses” into wills or trusts to attempt to deter a beneficiary from challenging the validity of the instrument. With the Virginia Supreme Court having recently handed down a decision on that issue in Rafalko v. Georgiadis, no contest clauses have come to the forefront of public discussion once again.
What is a no contest clause? A no contest clause (also referred to as an in terrorem clause) is a provision contained in a will or trust that states that if a beneficiary under the will or trust challenges the validity of the will or trust (or, in some instances, tries to take certain other actions against the executor, administrator, or trustee), that person will forfeit his rights to take under the will or trust.
Virginia law provides that no contest clauses are both “strictly enforced” and “strictly construed”. They are strictly enforced in the sense that courts will enforce their terms even if doing so will result in the harsh result of causing numerous people to forfeit their inheritances. They are strictly construed in the sense that courts will not interpret them to be any broader than their terms provide (the rationale behind this is two-fold: first, the drafter of the will or trust chooses to use the specific language that constitutes a no contest clause, and therefore courts will conclude that the precise language that was desired was in fact used; and second, a forfeiture of an inheritance is not favored by the law).
If a person challenges a will or trust with a no contest clause, and prevails in that challenge, the court will declare the will or trust to be invalid and of no effect (thereby eliminating the effect of the no contest clause), and a prior will or trust will control the disposition of the assets (and to the extent there is not a prior will or trust, then the statutory intestacy scheme will control the distribution of the deceased’s assets).
When a person is considering challenging a will or trust that contains a no contest clause, he faces a very important choice: risk challenging the will or trust (and if he’s unsuccessful, potentially lose the inheritance), or not take any action and instead accept an estate plan that the person considers to have been a product of undue influence, lack of testamentary capacity, fraud, duress, or the like. In some cases, the choice is easy. For example, if the potential challenger did not stand to receive anything under the will or trust in the first place (or only stood to receive a small sum of money), there is little or no downside to instituting a challenge. On the other hand, if the potential challenger has a sizeable sum of money at stake, he will need to carefully think through the merits of the challenge.
Virginia law is very fact specific with respect to interpreting no contest clauses. Some no contest clauses are written very broadly (such as those that purport to work a disinheritance if the challenger takes any action to “impede” the administration of an estate or trust in any manner). I’ve seen other no contest clauses that purport to apply to claims of breach of fiduciary duty against an executor/administrator/trustee, claims relating to actions of an agent under a power of attorney while the testator (the maker of the will) or the settlor (the maker of a trust) was alive, claims against a fiduciary for failing to inform and report to beneficiaries, etc. Other no contest clauses are narrower and apply only to challenges to a will or trust.
One frequent topic of dispute is the extent to which a no contest clause violates Virginia law (whether because certain clauses violate public policy, equitable principles of law, or, in the trust context, provisions of the Virginia Uniform Trust Code). No contest clauses that are drafted very broadly are more likely to be challenged on this basis compared to no contest clauses that are limited in their application solely to challenges to a will or trust.
Interestingly, there is a very big open question under Virginia law as to whether Virginia recognizes the “good faith exception” to no contest clauses. In brief, that is a legal doctrine that provides that if a challenger brings a contest to a will or trust and loses, if the court finds that the challenge was instituted in “good faith,” then even though the challenge was unsuccessful, the no contest clause will not be enforced to work a disinheritance. It is likely only a matter of time before a case raising that issue is heard by the Virginia Supreme Court.
In conclusion, no contest clauses can prove to be a helpful mechanism to try to avoid fights among beneficiaries, but they must also be prudently drafted to ensure that they cover the precise conduct that they are seeking to deter, and to also ensure that they are not so overbroad as to be unenforceable.
William W. Sleeth III is a partner with the national law firm of LeClairRyan, and the team leader of the firm’s Estate and Trust Litigation Practice Area Team.