One of the reasons you create an estate plan is to make sure that your wishes for the distribution of your property are honored. Another reason is to prevent your heirs and beneficiaries from arguing over your estate. Sadly, even if you have a will, some family members may find a reason to challenge it. It may be that they think they should inherit more than the will provides for. It may be that they genuinely believe the will was made as a result of undue influence or that you lacked legal capacity to make a will. By the time your will is submitted to probate, you are no longer around to explain or defend it. But if your will includes an in terrorem clause, you may not have to.
What is an in terrorem clause? “In terrorem” is Latin for “in fear,” and such a clause is designed to put your heirs in fear of losing their inheritance if they contest your will. For that reason, in terrorem clauses are also known as “no-contest” clauses.
How Does a No-Contest Clause in a Will Work?
An in terrorem clause is fairly straightforward. In a nutshell, the clause provides that if an heir or beneficiary challenges a will or trust or any of its provisions, they will forfeit their right to an inheritance under that instrument. A typical no-contest clause in a will might read:
“If any beneficiary contests the terms of this Last Will and Testament, including, without limitation, contesting the admission of this will to probate, that beneficiary forfeits his or her right to inherit under the terms of this instrument, and shall be considered, for the purposes of this Last Will and Testament, to have predeceased the testator.”
For example, suppose that Carol had an estate valued at $3.1 million and three daughters, Marcia, Jan, and Cindy. Because she openly favored Marcia and Cindy, Carol left each of them $1.5 million in her will, leaving Jan only $100,000. Jan wanted to contest the will, believing she was entitled to an equal share, but Carol had an in terrorem clause. Had Jan contested the will, the assets that would otherwise have gone to her would be distributed as if Jan had died before Carol.
Like all but a couple of states, Michigan allows the use of in terrorem clauses in a will or trust. However, there are some limitations. Michigan courts will not give effect to a no-contest clause if there is probable cause to bring a will contest or other challenge. This is reasonable; if the maker of the will or trust really was unduly influenced or legally incapable of making an estate plan, beneficiaries should be able to contest the instrument’s validity.
However, there is still risk involved: if a beneficiary challenges the validity of a will or trust, and the court decides that there was no probable cause to do so, the beneficiary will be stripped of their inheritance.
At least one clever Michigan trust beneficiary has gotten around this problem. Mark Perry’s father made a trust with a no-contest clause disinheriting any beneficiary who challenged the admission of the trust to probate, or any provision of the trust. Perry believed that his paternal aunt had unduly influenced his father to change his trust, leaving 75% of the trust assets to the aunt and the remaining 25% to his two children. Instead of directly challenging the provisions of his father’s trust, Mark Perry petitioned the court to determine whether there was probable cause to file a challenge.
The court ruled that Perry’s request for declaratory relief did not violate the in terrorem clause in the trust, and that ruling was upheld on appeal. (Note, however, that the outcome might have been different if the clause had prohibited any legal action relating to the trust, rather than just a challenge.)
Should You Have an In Terrorem Clause in Your Will or Trust?
It’s worth noting that, as forfeiture clauses, in terrorem clauses are strictly construed by Michigan courts. That means that unless a beneficiary’s action is explicitly forbidden by the clause, courts are reluctant to allow the forfeiture. Therefore, if you want to use an in terrorem clause, you should discuss with your attorney exactly what you want the clause to prevent, and tailor the clause accordingly.
You should also make your estate plan such that your no-contest clause will be an effective deterrent to will or trust contests. In the example above, had Carol chosen to leave Jan only $1.00, Jan would have had little incentive not to contest the will; even if she forfeited her inheritance by challenging the will, she would have lost next to nothing. In the scenario described earlier, Jan stood to lose $100,000 if she filed a will contest. That amount is substantial enough to make a potential challenger think twice about filing a lawsuit.
The amount you should plan to leave to a beneficiary to discourage them from challenging your estate plan depends on your circumstances and your intended beneficiaries. Aside from the impact of discouraging a potential challenge, there are reasons why you may wish to leave nothing to a potential challenger. For example, naming a person as a beneficiary in a will or trust, even for a nominal amount, may entitle them to information about your estate that they may not otherwise be entitled to. You should discuss the particulars of your situation with your estate planning attorney.
If you want to prevent challenges to your estate plan using an in terrorem clause, or want advice about challenging a will or trust that contains such a clause, contact Estate Planning & Elder Law Services to schedule a consultation.