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Bernard Justice Johnsen

Law, PLLC

1820 East Ray Road

Chandler, Arizona 85225

PH: (480) 264-5106

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No Contest Clauses in Trusts, What Are They?

August 10, 2017

 

No Contest Clauses (also known as In Terrorem Clauses) are provisions in a trust that state if any beneficiary attempts to contest the trust through the court, that beneficiary will be completely disinherited.  These clauses are very powerful tools and must be respected as the consequences of violating them can be catastrophic.

 

The controlling case regarding no-contest provisions contained in trusts is In Re Shaheen – which was decided by the Arizona Court of Appeals in January, 2015.  In re Shaheen Trust, 236 Ariz. 498, 500, 341 P.3d 1169, 1171 (Ct. App. 2015) (the Court acknowledged they could find no authority on this type of matter in Arizona).  The Shaheen Trust contained an expansive no-contest clause which stated: “[i]f any beneficiary under this Trust, in any manner, directly or indirectly, contests or attacks the validity of … this Trust or any disposition … by filing suit against . . . Trustee . . . then any share or interest given to that beneficiary under the provisions of this Trust is hereby revoked…”  Id. at 499 and 1170.

 

In Shaheen, two beneficiaries brought nine different challenges against the Trustee for breach of trust and the trial court found that “the Petition in this case is an attack on the validity of a disposition under the Trust in violation of the [no-contest] provision.”  Id. at 499-500 and 1170-71.  Yet, the trial court determined that the contesting beneficiaries had probable cause to bring their claims because the beneficiaries had a subjective belief that they would be successful.  Id. at 501 and 1172.  Therefore, the trial court did not order a forfeiture of the beneficiaries’ interests in the trust.  Id.

 

The trustee appealed the ruling to the Arizona Court of Appeals contesting that the beneficiaries did not have probable cause for their claims.  The Court of Appeals agreed with the trustee and held that when “challenges are brought in contravention of a no-contest provision, probable cause must exist as to each challenge.”  Id. at 501 and 1172.  The Court interpreted the Restatement § 9.1 and stated “that no-contest clauses are enforceable unless probable cause supports a contest.”  Id.  “Probable cause, in this context, 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.’”  Id. (quoting In Re Estate of Shumway, 198 Ariz. 323, ¶ 12, 9 P.3d at 1065).  Subjective belief that the claims are likely to succeed, while required, is not sufficient; the petitioner's subjective belief must be objectively reasonable.  Id. (quoting Shumway, 198 Ariz. 323, ¶ 13); cf. Bradshaw v. State Farm Mut. Auto. Ins. Co., 157 Ariz. 411, 417, 758 P.2d 1313, 1319 (1988) (discussing analogous test for malicious prosecution).

 

Ultimately, in reviewing the record, the Arizona Court of Appeals found that one of the beneficiaries’ claims had no merit; the trust instrument itself did not support their claim as requested; and the beneficiaries had not cited any legal authority or presented any credible evidence to support their position.  Id.  Accordingly, the Court determined that the beneficiaries’ claim was not objectively reasonable.  Id.  Wherefore, the trial court’s ruling was reversed in part and the beneficiaries’ interests in the trust were completely forfeited.  Id. at 502 and 1173.

 

So, what does Shaheen mean to you?  Well, if you are thinking about bringing any litigation that pertains to a trust, it is important to discuss the matter with an attorney.  Even if you are certain that you are not contesting the trust, you probably are.  For example, if you are certain the trustee is stealing from the estate, asking the court to remove him or her from office is a violation of the clause if the trustee is named and appointed by the trust.

 

Nevertheless, you still can seek the trustee’s removal if you have probable cause to bring your action.  Remember, probable cause for the police on television is defined differently than in probate court.  If you have questions about protecting your rights as a beneficiary of a trust, call me or another attorney before you take any action.  Otherwise, you may be left with nothing...

 

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