To Contest or Not: Drafting and Litigating No-Contest Clauses, 0117 COBJ, Vol. 46 No. 1 Pg. 39
| Author | Elizabeth T. Meck, Morgan M. Wiener, J. |
Trust and Estate Law
Elizabeth T. Meck, Morgan M. Wiener, J.
To Contest or Not: Drafting and Litigating No-Contest Clauses
This article discusses current law on no-contest clauses. It includes suggestions for attorneys who draft and litigate no-contest clauses and considers the risks of litigation involving these provisions.
Property owners are generally free to dispose of their property at death outright or in trust, in whole or in part, as they see fit. This alienability is subject to statutory rights afforded to surviving spouses, claims of creditors (including taxing authorities and dependents), and prohibitions of public policy that have been recognized in equity.[1]
Fundamental to the freedom to dispose of one’s property at death is the right to impose conditions on such transfers that restrict or limit the timing, nature, or extent of the recipient’s ownership of the property.[2] The in terrorem or “no-contest clause” has long been recognized as a condition intended to ensure that the settlor’s or testator’s wishes are honored by thwarting the likelihood of an attack on the dispositive instrument.3 A no-contest clause typically provides that a beneficiary or devisee will forfeit benefits under the document if he contests the validity of the document or any of its provisions. Generally, no-contest clauses in wills or trusts are held to be valid and to not violate public policy4
While recognized as a valid condition on a bequest, the no-contest clause is also criticized as a condition that impairs legitimate beneficiaries from addressing a perceived wrong in the execution or drafting of testamentary documents.5 Therefore, while no-contest clauses can be enforced in nearly all jurisdictions,[6] including Colorado,7 courts attempt to balance the rights of the testator and the beneficiary. As a result, enforcement of these clauses usually hinges on (1) whether the contesting party meets the objective standard of having probable cause8 to bring an action at the time that party initiated the action, and (2) in a minority of jurisdictions, whether the party raised the claim in good faith9 Further, although courts generally disfavor forfeiture,10 enforcement of these clauses frequently varies depending on how broadly the provision was drafted and whether the contesting party’s actions constitute an attack on the dispositive instrument or provision.
Given the rising amount of trust and estate litigation and the frequency of post-mortem changes to estate plans,11 estate planning clients are increasingly interested in including these clauses to ensure that their estate plans will remain unchanged after their death. The no-contest clause has become one of the most effective tools an estate planning attorney can incorporate into dispositive instruments such as wills and trusts to prevent challenges to the plan.12 Therefore, estate planning attorneys should draft clauses precisely, to ensure that enforcement is consistent with the client’s goals and expectations. Litigators can also take steps to protect against many of the risks to clients and themselves that are inherent in contesting the dispositive instrument.
This article discusses current law regarding no-contest clauses both in Colorado and nationally, how courts enforce no-contest clauses, considerations for attorneys drafting no-contest clauses, and the risks of litigation involving these provisions.
Colorado Law on No-Contest Clauses
Similar to nearly all other states, Colorado permits enforcement of no-contest clauses subject to “the probable cause exception.” This exception provides that the clause will be enforced if the contesting party lacked a reasonable belief, based on sufficient information and advice, that the claim would be successful. The probable cause exception is set forth in CRS § 15-12-905, which states that a provision in a will “purporting to penalize any interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings.”13
The Colorado Court of Appeals first interpreted CRS § 15-12-905 in the oft-cited case In re Estate of Peppler.14 In Peppler, the decedent had executed a will in 1984 devising most of his estate to his son (the 1984 will). After the decedent’s death, his granddaughter attempted to admit a subsequent will to probate (the 1992 will).15 The 1992 will named the decedent’s granddaughter as the personal representative and provided a significantly larger bequest to his daughter than in the 1984 will. It came to light that the 1992 will was procured by the decedent’s daughter and was drafted by an attorney who never met the decedent. Objections were filed regarding admission of the 1992 will, including undue influence and lack of testamentary capacity. The district court denied admission of the 1992 will, admitted the 1984 will, and appointed the personal representative nominated under the 1984 will. The personal representative then petitioned the court for instructions regarding the enforceability of the no-contest clause contained in the 1984 will, which provided that any beneficiary who “direct ly or indirectly initiates legal action to contest or attack the validity of this will or becomes an adverse party in a proceeding for its probate” would forfeit the beneficiary’s interest under the will.16 The district court instructed the personal representative not to enforce the no-contest clause, finding that the daughter had been “well-intended” but had been “badly advised and improperly influenced by her then-attorneys.”17 The personal representative appealed.
The Court of Appeals adopted the definition of probable cause for will contests from the Restatement (Second) of Property: “the existence, at the time of the initiation of the proceeding, of evidence which would lead a reasonable person, properly informed and advised, to conclude that there is a substantial likelihood that the contest or attack will be successful.”[18] The Court concluded that the attempt to admit the 1992 will did constitute an attack on the 1984 will and that a finding of undue influence did not preclude applying the probable cause exception; the court remanded the case to determine whether the probable cause exception applied.19
On remand, and viewing the evidence regarding testamentary capacity and undue influence from the perspective of a “reasonable person, properly informed and advised,” the district court determined that there could not have b een a reasonable understanding that the 1992 will would have been properly admitted to probate over the 1984 will.20 Accordingly, the probable cause exception did not apply, the no-contest clause was triggered, and the decedent’s daughter forfeited any interest she had under the 1984 will.21
Until recently, Peppler was the only Colorado case providing a detailed discussion of no-contest clauses. However, the Court of Appeals recently applied Peppler and the Restatement (Second) of Property and interpreted CRS § 15-12-905 in In re Estate of Sanstead.22 In this factually dense and complex case, the Court cited to Peppler in explaining that “[c]ourts generally do not enforce an in terrorem (no-contest) clause when a beneficiary acts in good faith and has probable cause to challenge the will.”23 The Sanstead Court ultimately enforced a no-contest clause, however, even though such clause was not explicitly in the will admitted to probate but was contained in a revocable trust incorporated by reference into the will. Specifically, restating the definition of probable cause in Peppler and the Restatement (Second) of Property, the Sanstead Court found that a no-contest clause, whether contained in a will or in a trust, will be enforced unless “a reasonable person, properly informed and advised would have concluded that a challenge [to a will or a trust] would succeed.”24
No-Contest Clauses in Other States
Colorado is not unique in enforcing no-contest clauses. Nearly all states permit the enforcement of some form of no-contest clauses.25 Currently, the majority of states have adopted a version of the Uniform Probate Code, which provides that no-contest clauses are enforceable subject to the probable cause exception.26 The majority of these states have also extended the enforcement of no-contest clauses to those contained in trusts.27 A minority of states also require that the contest be brought in good faith, explicitly requiring not only a determination of the objective probable cause standard, but also a determination that the contesting party had a subjective belief in the merits of the contest or attack on the instrument.28 A handful of states permit the enforcement of no-contest clauses without regard to either the good faith requirement or the probable cause exception.29 Currently, only Indiana and Florida expressly prohibit the enforcement of no-contest clauses, and Vermont is the only state that does not address the enforcement of no-contest clauses in either its statutory or case law.30
Enforcing and Litigating No-Contest Clauses
Both clients’ requests to incorporate no-contest clauses into their estate plans and the enforcement of no-contest clauses are on the rise. Assuming that the laws of a jurisdiction permit enforcing these clauses in the first place, lawyers must determine and advise their clients on how the clause will be enforced. This depends on whether there has been a contest and, if so, whether the contesting party falls within the purview of the clause.
Is There a “Contest”?
Courts have traditionally construed...
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