Are You an Estate Planning Terrorist? Is Someone in Your Family?

It is entirely possible. People planning their estates and their advisors have an understandable desire to prevent or at least discourage family members from challenging their wills or trusts in court. In order to do so, they often include language in the will or trust that provides that anyone who challenges the validity of the will or trust will forfeit the money or property the challenger would otherwise receive under the instrument. Such a provision is called an in terrorem clause, or a no contest clause. In terrorem means in fright, alarm, or terror. The idea is that the fear of forfeiture of a legacy or bequest will prevent or discourage the beneficiary from contesting the validity of the will or trust. For example, a beneficiary who objects to a will by filing a caveat in probate court would be challenging the validity of the will and would therefore violate the in terrorem or no contest clause.

 Are in terrorem or no contest clauses legal?

Yes. Georgia law recognizes that no contest clauses may be enforced by a court against a beneficiary so long as the will or trust specifies who will get the legacy or bequest if it is forfeited. Forfeitures are not favored in the law and therefore in terrorem clauses are strictly construed.

 Do in terrorem or no contest clauses work?

We are unaware of any empirical data or studies that would tell us whether in terrorem or no contest clauses have the desired effect of preventing or discouraging challenges to wills and trusts. While it seems logical that a beneficiary who is disappointed by the size or amount of a bequest would still not want to risk losing it by challenging the validity of the instrument, it is not hard to imagine circumstances where the prospect of losing a disappointingly small bequest would not serve as much of a deterrent. Moreover, logic may not be the governing force driving the behavior of a disappointed beneficiary.

 An in terrorem clause can only terrorize or discourage those who would receive property and have something to lose. Family members who are entirely disinherited by the will or trust have nothing to lose by challenging its validity. Therefore, if you want to discourage disfavored family members from challenging the will or trust, you have to make them a beneficiary in an amount sufficient to create a fear of forfeiture.

Regardless of whether they work as intended, we do know that there is a significant amount of litigation over the meaning and application of in terrorem clauses. Georgia appellate courts have recently addressed issues such as whether a beneficiary who assists others in a challenge to a will can violate the no contest clause (yes), and whether there is an exception to the application of a no contest clause where the beneficiary brings the challenge to the validity of the instrument in good faith (not so far, but other states recognize the exception on public policy grounds). The boilerplate no contest provisions that some drafters include in their wills and trusts are so broad that they are likely to generate litigation because they could be read to go beyond merely prohibiting a challenge to the validity of the will or trust.

A common misconception is that in terrorem or no contest clauses prevent beneficiaries from suing the executor or trustee for alleged misconduct as fiduciaries. They do not. Where an executor or trustee engages in any alleged misconduct in the administration of the estate or trust – such as lying, stealing, cheating, or lack of prudence that causes a loss – the beneficiary is free to sue and the in terrorem or no contest clause provides no protection. In suing the fiduciary for misconduct, the beneficiary is not challenging the validity of the will or trust and instead is affirming the validity of the instrument by seeking to have it administered properly. As a matter of public policy, courts have no reason to protect fiduciaries from the consequences of violating their legal duties. 

In summary, it can be harder to be an effective estate planning terrorist than it might seem. Those contemplating including in terrorem or no contest clauses in their wills and trusts should consider their particular circumstances carefully.