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The New Terror Clause Case

An unpublished Court of Appeals opinion out of Kent County offers some interesting issues regarding the scope of no contest clauses.

Decedent had three children, one of whom was developmentally disabled.  Decedent was that child’s plenary guardian.  Daughter A was the standby plenary guardian.

Decedent left a will that said that Daughter A would receive a 1/3 interest in the residue of the estate, but that her share would be forfeited if she acted as guardian for disabled sibling.

After Decedent’s death, Daughter A took steps to obtain her appointment as guardian over her disabled sibling, obtaining the appointment based on her position as standby guardian.

Personal Representative petitioned the Court to affirm the enforcement of the terror clause, and prevailed on summary disposition, which decision was upheld by the Court of Appeals in Estate of Rudy Jauw, September 13, 2012.

It is notable that in this case the terror clause was used to cause a beneficiary to lose her share of the estate for something other than challenging the validity of the instrument.  Rather, the penalty was imposed for behavior unrelated to the validity of the document itself.  Planners may want to consider other applications for this type of expanded terror clause.

General Perry’s Terror Clause

I just filed a brief in an appeal that may be of interest to some of you.

The case involves the estate of Brigadier General Miller Perry, who died leaving a restated trust.

The restatement of the trust altered the beneficial shares.  One of the beneficiaries whose share of estate was reduced by the restatement filed a “Petition to Determine Probable Cause,” alleging that the restatement was the product of undue influence and requesting that the court determine that this beneficiary had probable cause to institute a trust contest.

I represented the Trustee.  In our response I asked the trial court to determine that there was no probable cause to contest the trust, and also that the filing of this Petition to Determine Probable Cause was a “contest” sufficient to trigger the forfeiture of interest provided in the “no contest” clause in General Perry’s Trust.

This issue arises because of the changes brought about by MCL 700.7113 of the Michigan Trust Code.  As you may recall, this section of the Trust Code says that a no contest clause will not be enforced by a trial court if the contestant had probable cause to initiate the action.  This statute changed Michigan law when it was adopted in 2010.  Before the adoption of the Trust Code, Michigan law strictly enforced no contest clauses.  Nacovsky v. Hall (In re Griffin), 483 Mich 1031, 766 NW2d 613 (2009). [I am proud to note that the Griffin case was successfully litigated by John Bos of our office.]

The issue before the Court of Appeals is whether the law allows a litigant a “free bite” at the apple.  That is, whether, by calling a pleading a Petition to Determine Probable Cause, the litigant/beneficiary is able to engage in discovery and have a hearing without being subject to the forfeiture of interest provisions of the no contest clause.  I argue that this is not the law, and should not be the law.

In my brief, among other things, I cite California’s experience.  California allowed parties in trust contests to seek declaratory judgment on this point by statute, but later determined that this process only promoted litigation, and repealed that law.

Stay tuned.