In Terrorem – No Contest Clauses

One of the strengths of a well-crafted estate plan is that it promotes harmony among the beneficiaries. This means that the creator of the plan has set forth either incentives for agreement or disincentives for conflict. The most common tool to provide a disincentive for conflict is the In Terrorem or No Contest Clause.

A standard No Contest clause will provide that a beneficiary who contests or attacks the validity of the Trust or the disposition of the assets under the trust will forfeit their interest under the Trust. This result may seem severe but it is used because there needs to be a real threat of consequences for the challenger to the Trust. State law and the courts have traditionally disfavored litigation over the validity of the Trust or its administration because such challenges will likely erode the value of the trust and foster the dissention between the parties.

A beneficiary who wants to file a challenge will need to be very cautious before filing a claim, and should carefully review the Trust document to identify the risks involved. Courts in Arizona, and the other states that have adopted the Uniform Trust Act, have held that each and every complaint against the Trust or Trustee must be based in probable cause; if not, then the No Contest clause will be enforced by the court and the challenger will be disinherited.

Keep in mind that a No Contest clause will do nothing to discourage a challenge or suit from a disinherited heir. Because that person receives nothing from the Trust, there is nothing to lose in contesting the Trust. Also, if a beneficiary can establish probable cause for a claim, then the courts will not enforce the No Contest clause. This prevents a rogue trustee from using the No Contest clause as a means to ignore the terms of the Trust.

If you have questions about No Contest clauses or if you have concerns about a challenge to your will or trust, an experienced trust and estate planning attorney at Nielsen Law Group is available for a complimentary review of your estate planning documents. You can also discuss alternative methods besides a No Contest clause. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.