March 25, 2013

No Contest Clauses – Boilerplate or Bombshell

by Morgan Wiener

While fiduciary litigation often arises due to family conflicts and changes in family circumstances, another frequent source of litigation is the decedent’s estate planning documents themselves.  Estate planners often include a no contest clause in a will in the hopes of preventing a fight over the validity of the instrument; however, it is often these no contest clauses themselves that are the source of the very litigation they seek to prevent.

A no contest, or in terrorem, clause is a provision found most frequently in a will, although it can also be included in trusts, designed to discourage litigation over the testator’s estate plan by disinheriting a person who unsuccessfully contests the will.  A will contest can encompass a variety of different challenges to a will and is broadly defined by Black’s Law Dictionary as “[a]ny kind of litigated controversy concerning the eligibility of an instrument to probate.”

Planners (and potential will contestants) may believe that these clauses are generally not enforced and, consequently, include them in estate planning documents as boilerplate.  This belief is not unfounded, as one of Colorado’s leading cases on the subject, In re Estate of Peppler, states that “[w]hile no-contest clauses in wills are generally held to be valid and not violative of public policy, such clauses are to be strictly construed, and forfeiture is to be avoided if possible.”  Even the Colorado Probate Code sections on no contest clauses seem to reinforce this belief, stating that “[a] provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings.”  C.R.S. §§ 15-11-517, 15-12-905.

The reality, however, is that no contest clauses are enforceable when there is no probable cause for bringing the will contest; this office, for example, recently litigated a case in which we had a no contest clause enforced against beneficiaries of an estate and trust. 

Under Peppler, probable cause is defined as “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.”  Colorado commentators have noted that whether the contesting party had a “substantial likelihood of success” is to be considered in light of the burden of proof and the elements of the claim.  David M. Swank, No-Contest Clauses:  Issues for Drafting and Litigating, 29 Colo. Law. 57.  This means that in a challenge to the validity of a will, the contesting party has the ultimate burden to prove by a preponderance of the evidence that the challenged will is invalid because of lack of testamentary capacity, undue influence, fraud, duress, mistake, or revocation.  In determining whether the contesting party was “properly informed and advised”, one factor for the court to consider is whether “the beneficiary relied upon the advice of disinterested counsel sought in good faith after full disclosure of the facts.”  Although “disinterested counsel” is not defined, Colorado commentators have also suggested that “disinterested counsel” does not include the contesting party’s counsel for the will contest because, if the advice of such counsel were sufficient, this factor would be essentially meaningless as nearly every person bringing a contest would be able to meet it.  Id.

As you can see, this probable cause standard has some teeth to it, and complex, fact intensive litigation can arise not only about the challenge to the will itself, but also about whether the no contest clause should be enforced to disinherit the unsuccessful will contestant.  Potential will contestants should, therefore, consider all of the facts, think carefully, and obtain legal advice before bringing a will contest.  Planners should also discuss the issue with their clients before adding a no contest clause to a will, consider whether a challenge to the will is likely and what types of challenges may arise, and make sure that the testator understands that the very tool designed to prevent litigation may itself be the cause of a lawsuit.