From time to time we write about “no-contest” clauses in wills (and, sometimes, in trusts). The provisions are popular. Many people think including such a provision will reduce the likelihood of disputes among their heirs. That often turns out to be the case — but not always.
What is a no-contest clause?
The precise language of a no-contest provision can vary. Typically they include language that penalizes any legal action to contest the will. Sometimes they might prohibit even assisting another contestant. The no-contest provision might affect a will, a trust or both.
No-contest clauses are sometimes called “in terrorem” provisions. The whole intent is to terrify family members who might consider a challenge.
Ralph Credille’s Revocable Trust
Arizona resident Ralph Credille created a trust in 2014. He wanted his three children to receive the bulk of his property, and in equal shares. Ralph lived in a unique part of the state — the so-called “Arizona Strip.” What makes the Strip unique? It is separated from the rest of Arizona by the Colorado River and the Grand Canyon, and is therefore an isolated, rural area just a few minutes from Las Vegas, Nevada.
Ralph apparently thought his children might want to keep his manufactured home and the land it sat on in Beaver Dam, Arizona. In fact, his son Doug was living in the home when Ralph died. Ralph had named Doug as trustee, and Doug believed that meant he could continue to live in Ralph’s home rent-free.
Ralph’s trust had two unusual provisions. In one, he gave his three children authority to vote on whether to divide the property into three shares, keep it in the trust, or sell it. Doug’s two siblings notified him that they wanted the property sold, and the proceeds divided.
The other unusual provision in Ralph’s trust was a no-contest clause. It said that any of the three children who contested the trust would “forfeit all interest in any property, income or other benefit,” and that a forfeited interest would be distributed as if the contestant had died before Ralph. That left Doug’s siblings with difficult choices about how to proceed.
Ultimately, the siblings filed a claim in the Arizona probate court. They asked the judge to remove Doug as trustee and affirm that his sister would take over the trust. In addition to failing to honor their wishes regarding the home, they pointed out that Doug had also failed to distribute Ralph’s personal belongings or his brokerage account.
The no-contest provision at work
Doug immediately objected to his siblings’ petition. He argued that their challenge to his authority constituted a contest of the trust, and they should be disinherited because of it.
Then Doug took a second step. He added a claim that the trust should be modified to reflect Ralph’s real intentions. He asked that the court include a provision specifically authorizing the trust to retain the home for the benefit of any child — including him — who might need a place to live.
Doug’s siblings responded to that by arguing that Doug had now violated the no-contest provision. By seeking to modify the trust, he was effectively challenging it, they argued. Besides, they insisted, Doug had no evidence to support his assertion.
The probate court agreed with Doug’s siblings. She ruled that they had not contested the trust — especially since they were right. They had sought to enforce the trust’s terms, and would not be penalized for their court filing.
Doug, however, had challenged the trust. The probate judge found that he had been disinherited by his actions; she removed him as trustee, appointed his sister and ordered her to distribute as if he had predeceased Ralph.
The Court of Appeals
The Arizona Court of Appeals agreed with the probate judge. Ralph’s no-contest provision worked both ways — it would have penalized Doug’s siblings if they had challenged the trust, and it did penalize Doug for his attempt to modify the trust’s terms.
Doug had also argued that Ralph’s trust was ambiguous. In one place it gave the three children equal votes on retention, division or sale of the property. In another, it expressed his hope that his offspring would keep the property in the family in perpetuity. That, said the Court of Appeals, was not an ambiguity; the specific language about equal votes clearly controlled Ralph’s statement of his desire for the property. Besides, Doug had introduced no evidence to support his argument about Ralph’s intentions. Maatter of Credille Revocable Trust, September 27, 2018.
No-contest provisions are powerful. Sometimes they can have unexpected consequences. Even though the Arizona Strip may be a long way from lawyers, it might have done Doug good to get competent legal advice in his administration of his father’s trust.
Assuming Ralph had wanted to prevent disputes among his children, what might he have done differently? First, he might have made clear that they either had let Doug live in the home — or not. Apparently, Doug had been living there for some time, so perhaps he could have anticipated the problem. The use of a no-contest provision, though, might actually have lulled Doug into a false sense of security about his (incorrect) view of his legal opinion. With hindsight, at least, it might also seem obvious that Doug was not the right child to trust with the job of successor trustee.