In Terrorem Now has an Exception
September 4, 2014 § 5 Comments
In terrorem clauses, as you will recall dimly from law school, are provisions in wills and trusts that prohibit any beneficiary who contests the instrument from taking anything through it, in effect creating a forfeiture. They are designed to be a potent deterrent to litigation among the beneficiaries.
Mississippi has long adhered to the rule that, unless a particular provision is contrary to law, a testator or settlor is allowed to make any provisions for disposition of his property that he sees fit to make, including in terrorem clauses.
Here is a specimen in terrorem clause from a will:
If any beneficiary hereunder (including, but not limited to, any beneficiary of a trust created herein) shall contest the probate or validity of this Will or any provision thereof, or shall institute or join in (except as a party defendant) any proceeding to contest the validity of this Will or to prevent any provision thereof from being carried out in accordance with its terms (regardless of whether or not such proceedings are instituted in good faith and with probable cause), then all benefits provided for such beneficiary are revoked and such benefits shall pass to the residuary beneficiaries of this Will. . . .
That language was the subject of litigation in the MSSC case of Parker v. Benoist, decided by the MSSC on August 28, 2014.
William Benoist had admitted the 2010 will of his father, B.D. Benoist, to probate. It included the in terrorem language set out above. William’s sister, Bronwyn, who was a co-fiduciary with William over some of their father’s assets, filed a will contest charging undue influence, and asking the court for an accounting, to void any benefits William received as a result of his undue influence, and for equitable relief.
Following a trial, the jury returned a verdict that, although there was evidence of a confidential relationship, there was no evidence of undue influence. The chancellor then ruled that the in terrorem clause was valid and enforceable, and that, as a result, Bronwyn took nothing under the will. Bronwyn appealed.
In a case of first impression, the MSSC reversed the chancellor’s enforcement of the in terrorem clause. This language is from ¶ 1:
In this appeal, we must determine whether Mississippi law should recognize a good faith and probable cause exception to a forfeiture in terrorem clause in a will. We hold that it should, and that Bronwyn has sufficiently shown that her suit was brought in good faith and was founded upon probable cause.
At ¶ 8, the court, in an opinion written by Justice Kitchens, said that “We hold that such a provision is unconstitutional under Mississippi’s Constitution, void as against public policy, and fundamentally inequitable, and we join the large number of jurisdictions who permit a good faith and probable cause exception to forfeiture clauses in wills.”
The opinion goes on to say that such clauses frustrate the fundamental purpose of courts, which is to detemine the truth and to decide whether or not a will is valid, contrary to the Mississippi Constitution’s guarantee of the right of access to the courts. Although forfeiture provisions may serve the useful purpose of discouraging and punishing persons from seeking unjustified enrichment and corecive settlements, they go too far when they deprive the court of its duty to determine the validity of a donative transfer. The solution is to allow a good faith and probable cause exception. This is what the court said at ¶ 14:
… The will of the testator should control, but courts exist to determine whether the testator’s will is a valid reflection of the testator’s wishes. Black’s Law Dictionary defines “probate” as a “[c]ourt procedure by which a will is proved to be valid or invalid. . . .” Black’s Law Dictionary 1081 (5th ed. 1979). By definition, probating a will is proving that it is valid. This must occur through litigation. A strict interpretation of no-contest provisions in wills would hamper courts’ goal of determining what is, once and for all, the will of the testator. A bona fide inquiry into the validity of the will should not be defeated by language contained in the will itself. We hold that, in Mississippi, forfeiture provisions in wills are enforceable unless a contest is brought in good faith and based on probable cause. “Probable cause exists when, at the time of instituting the proceeding, there was evidence that would lead a reasonable person, properly informed and advised, to conclude that there was a substantial likelihood that the challenge would be successful.” Restatement (Third) of Property: Wills and Other Donative Transfers at § 8.5 cmt. c. The determination of good faith and probable cause should be inferred from the totality of the circumstances. [Emphasis added]
The bottom line in this case is that, although in terrorem clauses can still be used in wills and trusts, they may now be overcome and adjudged unenforceable if subjected to challenges found to be made in good faith and based on probable cause. And the right to have a court scrutinize the validity of the will can not be thwarted by the language of the will. These are important points of law on which to advise your clients when drafting donative instruments.
In this case, the court found that Bronwyn did have probable cause because: she understood her parents’ previous intentions from prior wills and discussions she had had with them; the 2010 will was unknown to her and contradicted her prior understanding; her father had been in failing health complicated by alcoholism and use of pain killers around the wtime he executed the 2010 will; he was taking medication for cognition problems; large withdrawals were made from his accounts that went directly to William; and he conveyed large tracts of real estate to William around the time of making the 2010 will. The 2010 circumstances occurred while B.D. was in William’s care. There was no evidence of bad faith on Bronwyn’s part in bringing her suit.
By the way, I got a thrill out of ¶ 12 of the court’s opinion, where Justice Kitchens invokes maxims of equity and actually quotes from Griffith’s Mississippi Chancery Practice.
There are some other interesting aspects to this case, including: the award of attorney’s fees from the estate to defend the will; the denial of an award of attorney’s fees against Bronwyn; and whether William should have been disqualified and removed as executor. Each of those deserves its own, separate post. Until then, you can read the court’s opinion for yourself.