Testators and settlors often attempt to prevent disputes after they're gone by including no-contest clauses in wills and trusts. No-contest clauses (also known as in terrorem provisions) provide disincentives to dissuade beneficiaries from challenging the validity of a will or trust or seeking to undermine the testator's or settlor's intent. Sometimes, these disincentives go so far as to completely disinherit a beneficiary who runs afoul of the no-contest provision.
What if a Beneficiary Has Questions?
While no-contest clauses can prevent unnecessary estate and trust disputes, they may also provide a chilling effect on "helpful" litigation. What if, for example, a beneficiary has legitimate questions about how a will or trust should be interpreted? Do they risk forfeiting their share by asking a court to weigh in? If that were the case, important questions might go unanswered. Is there anything a beneficiary can do to ensure they aren't violating a "no contest" clause by raising them in a Virginia court?
The Two-Step Complaint.
Fortunately, in cases involving both wills and trusts, there is. A beneficiary can file an alternatively-pleaded complaint which asks the court to determine, as a threshold matter, whether the beneficiary would violate the no-contest clause of the will or trust in question by seeking certain relief. Then, if and only if it wouldn't, the beneficiary can ask for the substantive relief in the same complaint.
Two weeks ago, in Hunter v. Hunter, the Supreme Court of Virginia gave its "express approval" to this two-step, alternative pleading approach. In Hunter, the settlor created a trust with a no-contest clause. After the settlor's death, the successor trustee/settlor's daughter sent to her brother, a trust beneficiary, an account statement allegedly showing a sharp decline in the value of trust assets. When the brother sought to obtain more information from his sister, her lawyer refused, citing a provision in the trust that waived his client's duties to inform and report.
The brother then filed a two-count declaratory judgment action. In Count II, he sought an interpretation of the trust that would require his sister to disclose information to him. However, he sought that relief "if, and only if," the Court ruled in his favor on Count I, which asked for an initial determination of whether Count II would violate the trust's no-contest clause. In his complaint, the brother cited Virginia Foundation of Independent Colleges v. Goodrich, a 1993 case in which the Supreme Court implicitly endorsed a similar two-step complaint and held that a request for interpretation of a will did not violate the will's no-contest provision.
The sister responded by filing a counterclaim alleging that, by filing suit at all, her brother violated the trust's no-contest clause. The trial court agreed and granted the sister's motion for summary judgment, construing Count II of the brother's complaint as an attempt to invalidate the anti-inform and report provision of the trust, ruling that the brother's interest in the trust was revoked, dismissing his declaratory judgment suit with prejudice, and ordering that the brother pay his sister's attorney fees.
On appeal, the Supreme Court reversed the trial court's ruling. First, noting that the brother "followed the Goodrich template," the Court held that he did not run afoul of the trust's no-contest clause by filing his two-step, alternatively-pleaded complaint. As the Court noted, a plaintiff is "the master of the complaint." Thus, the trial court should have done what he asked. Rather than jumping straight to Count II, the trial judge should have first considered whether it violated the trust's no-contest clause, as the brother requested.
"Construing a legal document and contesting it are two different things."
Second, the Court rejected the trial court's ruling that Count II violated the trust's no-contest clause. That question must be answered by looking to the language of the particular no-contest provision at issue. No contest provisions are both "strictly enforced," meaning courts will enforce them without regard to any harsh consequences, and "strictly construed," meaning that they must "precisely express" the intent to cause a forfeiture of a wayward beneficiary's interests.
Here, the no-contest clause in the mother's trust included precatory language stating that it was her desire that her "children and grandchildren not expend resources disputing loans, gifts or bequests that" she made. It then prohibited contesting any provision of the trust, defined specifically as taking "any action seeking to invalidate, nullify, set aside, render unenforceable, or otherwise avoid the effect of an instrument, action or transaction."
That, the Supreme Court says, is not what the brother did. He sought an interpretation of the trust's anti-inform and report provision, given other potentially applicable law. He did not "contest" anything. In Goodrich, the Court held that "seeking the 'guidance of a court in interpreting' a disputed provision of a will does not constitute contesting the will ' in a manner which would actuate a forfeiture clause.'" Here, the Court holds that "[t]he same is true in trust law."
Can a settlor or testator prohibit beneficiaries from seeking interpretations?
Finally, the Court addressed another provision in the trust stating that a petition made in good faith and with the trustee's blessing could seek an interpretation of the trust without violating its no-contest clause. The sister argued that, because she did object to her brother's suit, the inverse must be true, and his request for interpretation was out-of-bounds.
Although the Court notes that several courts have criticized efforts to prevent beneficiaries from seeking interpretations of wills and trusts, it doesn't reach the question here. That is because, as described above, no-contest provisions are "strictly construed." Nothing in the no-contest clause at issue in Hunter expressly prohibits a beneficiary from seeking an interpretation. The Court will not read into the implications of the provision the sister relies upon to determine that such a request violates the trust's no-contest clause.
There are three key takeaways from the Supreme Court's decision in Hunter v. Hunter. First, a beneficiary under a will or trust can avoid the harsh consequences of a no-contest clause by filing a two-step, alternatively-pleaded complaint asking the court to determine, as a threshold matter, whether requesting certain substantive relief would violate the no-contest clause.
Second, a beneficiary does not run afoul of an ordinary no-contest clause merely by seeking an interpretation. However, the Court has yet to consider whether a settlor or testator can also foreclose interpretation suits by expressly prohibiting them, as well.
Third, estate and trust litigation is a complex area of law, with many nuanced rules and potential pitfalls. Here at The Mottley Law Firm, we dedicate much of our practice to representing fiduciaries and beneficiaries in estate and trust disputes. We understand the playing field in estate and trust cases. If you or your loved ones need assistance with a matter involving an will, a trust, a power of attorney, or any similar issue, call The Mottley Law Firm at (804) 409-0876 to discuss your case today.