Controlling The Uncertainty In The Possibility Of A Contest

By: Randall A. Denha, J.D., LL.M.

One of the underlying goals of creating an estate plan should be to head off fights among your beneficiaries and instead promote acceptance that your true wishes have been spelled out and will ultimately be fulfilled.

A no-contest clause, also known as the “in terrorem clause” or “terror clause,” is a provision that you can include in a Will or Trust stating that if a beneficiary takes legal action contesting the will, that person will lose out on his portion of the inheritance. The clause can be included in the will or trust if you anticipate that one of the beneficiaries will contest the Will or Trust. The clause is intended to discourage beneficiaries from contesting a Will or Trust. A no-contest clause may be useful in a will or trust when you suddenly change the will at the last minute. New information may emerge in later years that may require a person to change the will or trust. Although last-minute changes to a Will or Trust may be made for valid reasons, such changes are more likely to be contested in court compared to changes that have been part of the documents for some time. A disgruntled beneficiary is more likely to contest the Will or Trust in court if the will lacks a no-contest clause.

No-contest clauses are enforceable in Michigan under a Will or Trust agreement to the extent that the challenger lacks “probable cause” for instituting a proceeding to contest the document. Michigan statutes, therefore, create an exception to the enforceability of no-contest clauses. If the challenger lacks “probable cause” to support his or her challenge, the clause will be valid and enforceable, and the challenger will be penalized according to the clause. However, if the challenger has probable cause to challenge the will or trust, he or she may bring an action in the appropriate probate court, with no risk of losing his entire gift.  Put another way, most Wills and Trusts have clauses in them stating that any interested person or beneficiary who contests the Will or the Trust will forgo their rights, under Michigan Law, if there is no probable cause for challenging the Trust or Will. In other words, the consequences of a “no contest” clause will only kick in when there was no reasonable basis, or probable cause, to challenge the Trust/Will. As a practical matter, Michigan courts require that no-contest clauses always be strictly construed, as they are considered to be forfeiture clauses. In practice, these types of clauses are narrowly construed to avoid forfeiture, if possible; meaning, a beneficiary triggers the no-contest clause only when his or her actions are explicitly prohibited by the terms of the no-contest clause.

When any Will or Trust is contested, the probate court is required to investigate the claim and the admission or approval of the document will be suspended until a decision is made as to the value of the contest. The responsibility for providing evidence that a will or trust is invalid is largely on the individual who is bringing the claim. Once a reasonable amount of credible evidence is provided to the court, the personal representative of the will may be compelled to produce evidence to support the contested will.

What facts give you probable cause to challenge a Trust/Will? The most common reasons for challenging a Trust/Will are:

• The decedent lacked mental capacity when the Will or Trust was made;
• The decedent was unduly influence by another (oftentimes, a close family member);
• Fraud or Forgery in the document;
• The existence of a more recent Will or Trust; or
• The Will or Trust was not executed properly (not witnessed or signed properly).

Notwithstanding all of the above, not all disputes would trigger the no-contest clause. Some examples of disputes that would not trigger the clause include:

• litigation over whether the fiduciary administering the estate or trust has breached a fiduciary duty;
• litigation to compel a fiduciary to prepare and serve accountings;
• litigation to have the Probate Court interpret an ambiguity in the document

Michigan law on terror clauses is pretty straightforward and is spelled out in MCL 700.7113 (for trusts) and in MCL 700.2518 and 700.3905 (for wills).

No one can control whether or not a beneficiary will institute a lawsuit against a Will or Trust, despite the presence of the no-contest clause. However, with a no-contest clause present in a Will or Trust, you take your chances in not only potentially losing any inheritance, but also incurring a penalty for initiating any form of proceeding which relates to the Will or Trust, if so drafted.  The scope of the terror clause itself is significant in deciding how to proceed in cases where these provisions are in play.