Continuing with its effort to make New Hampshire the best trust environment in the United States, legislators recently took steps to reform some of its estate and trust laws.
The legislature has made a commitment to be the "most attractive legal environment . . . for trusts and fiduciary services"1 by making an "attractive legal and financial environment for individuals and families seeking to establish and locate their trusts and investment assets"2 to New Hampshire. On July 13, 2011, Governor Lynch approved Senate Bill 50, which became effective on September 11, 2011, changing various laws relating to wills and trusts.3 This article relates solely to the provisions of the statute regarding "no-contest" provisions, also known as "in terrorem" or "anti-contest" clauses, in wills and trusts. The text of the new legislation can be found at http://www.gencourt.state.nh.us/legislation/2011/SB0050.html .
The new laws in Senate Bill 50 codified existing law, expanded the application of no-contest clauses to trusts,4 and enumerated exceptions. Overall, these new laws make it more difficult for beneficiaries to contest the provisions of a will and trust that contain no-contest provisions. The law closes loopholes and gives great deference to a testator's (or settlor's) wishes.
APPLICABILITY
RSA 551:22 relates to the enforcement of no-contest provisions in wills, whereas RSA 564-B:10-1014 relates to the enforcement in trusts. Both statutes are applicable to "all judicial proceedings concerning the enforcement or interpretation of no-contest provisions commenced on or after September 13, 2011."5 The provisions of both statutes mirror one another, with references to wills and trusts and executors and trustees, accordingly.
DEFINITION OF A NO-CONTEST PROVISION
A no-contest provision is defined as a provision that "if given effect, would reduce or eliminate the interest of any beneficiary of such will [or trust], who directly or indirectly, initiates or otherwise pursues"6 an action that 1) contests the admission or validity of the will or trust 2) sets aside or varies the terms of a will or trust,7 3) challenges the acts of the executor or trustee in the performance of his duties as described in the will or trust; or 4) frustrates or defeats the intent of the testator or settlor as provided under the terms of the will or trust.8 To be applicable, the no-contest provision must apply to a beneficiary under the will or trust.9 The attorney preparing a will or trust should be careful to leave the beneficiary to be excluded an interest under the Will or Trust so that the provisions of the no-contest clause are applicable.
RSA 551:22, II. and RSA 564-B:10-1014 (b) specifically provide "a no-contest provision shall be enforceable according to the express terms of the no-contest provision" regardless of good faith and probable cause for bringing an action, but subject the exceptions discussed below.
THE EXCEPTIONS
No-contest provisions under a will and trust are not enforceable to the extent the document is invalid because of "fraud, duress, undue influence, lack of testamentary capacity, or any other reason."10 The language "any other reason" was not clarified under the statute and will be subject to further interpretation. Most likely this will apply to invalidation due to forgery, revocation by a later will or a provision benefiting the preparer of the document, etc.
In addition, there is an exception making a no-contest provision unenforceable when the action solely challenges the acts of a fiduciary who has "committed a breach of his fiduciary duties or breach of trust."11 NH adopted the minority view by providing that a no-contest provision is enforceable regardless of "probable cause" and regardless of the beneficiary's "good or bad faith" in pursuing the action that would cause a complete or partial forfeiture of the beneficiary's interest.12
However a no-contest provision is not enforceable and the above exceptions are not applicable when:
1) the executor or trustee brings an action when he is the beneficiary against whom the no-contest provision applies;13
2) there is an "agreement among the beneficiaries and any other interested parties in the settlement of a dispute or resolution of any other matter relating to the will [or trust];"14
3) there is an action to determine if a pending "motion, petition, or other proceeding constitutes a contest within the meaning of a no-contest provision;"15 or
4) there is an action brought by a beneficiary or on behalf of any such beneficiary . . . for a construction or interpretation of the will [or trust] terms.16
RSA 551:22, III.(e) and 564-B10-1014(c)(5) carve out another exception for actions brought by the Attorney General when probable cause exists to institute proceedings "for a construction or interpretation of a will [or trust] containing a charitable trust or charitable bequests or if a provision exists in a will or trust purporting to penalize a charity or charitable interest for contesting the will or trust or instituting other proceedings relating to the estate or trust."
NH CASE LAW
In 1952, the NH Supreme Court set precedence by holding a no-contest provision in a will is valid.17 In Burtman v. Butman,18 a beneficiary contested a will provision that was separate from the no-contest provision under the same will.19 The court reviewed exceptions to the application of no-contest provisions based on a violation of public policy when there is good faith and probable cause to bring the action20 and held:
[There is] "[n]o absolute exception in the case of good faith and probable cause as any such exception would nullify all no-contest provisions. These factors would be considered only as requirements for preventing a forfeiture when a violation of some public policy is claimed, but not established.21
Further, the court explained "where the intention of the testator is clear and no question of public policy is involved either in the nature of the provision attacked or the way it or the will came into being, effect will be given to such no-contest clause. . ."22
Thus, RSA 551:21 codified New Hampshire case law as far as not requiring probable cause and good faith when bringing an action contesting the validity of a provision of a will that contains a no-contest clause.
THE MAJORITY VIEW
What makes New Hampshire's laws different than the majority view in the United States is the elimination of the probable cause requirement, which if required, would permit a disinherited beneficiary to bring an action when there is probable cause to do so. In New Hampshire, any will or trust contest makes the no-contest provision applicable to the contestant and triggers the enforcement of its terms (except as noted above).
The probable cause rule is adopted by the Uniform Probate Code §§ 2-517 and 3-905 (1990) and Restatement (Third) of Property: Wills and Other Donative Transfers §8.5 (2003).
The Uniform Probate Code §§ 2-517 and 3-905 (1990) provide:
A provision in a will purporting to penalize any interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings.
For a court decision explaining the application of the probable cause standard, see In re Estate of Shumway, 9 P.3d 1062 (Ariz. 2000). In Shumway,23 probable cause was defined as:
[T]he 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. The evidence needed ... should be less where there is strong public policy supporting the legal ground of the contest or attack.... A factor which bears on the existence of probable cause is that the beneficiary relied upon the advice of disinterested counsel sought in good faith after a full disclosure of the facts.24
See also Anti-Contest Clauses: When You Care Enough to Send the Final Threat, by Martin D. Begleiter, 26 Ariz. St. L.J. 639 (1994) for a discussion in favor of the minority view.
INTESTACY & THE DISINHERITED BENEFICIARY
To the extent a beneficiary successfully contests a will or trust incorporating a no-contest provision and the estate or trust property becomes subject to intestacy "the contestant will be entitled to his intestate share of the property despite the in terrorem clause."25 Although there is no case directly on point on this issue, there are several NH Supreme Court decisions that support this conclusion. In Wells v. Anderson,26 the testatrix left a beneficiary "one dollar and no more" but did not dispose of all of her property under her will.27 The court held the disinherited beneficiary took his intestate share of the estate by operation of law under the intestacy statute and not the will.28 Further, in the decision of In re Estate of Stewart29 several beneficiaries were disinherited under the will, but when a specific legacy under the will lapsed, the court found the disinherited beneficiaries took their shares as provided under the intestate statute.30 To the extent a testator makes no provision for the disposition of the residue after death, such property will pass as intestate property and subject to RSA 561:1.31
CONCLUSION
The codification of case law regarding wills in RSA 551:22 and the new statute, RSA 564-B:10-1014, extending the application of no-contest provisions to trusts, tightens the estate and trust laws regarding in terrorem clauses by discouraging disinherited beneficiaries from contesting wills and trusts. By honoring the intent of a testator and settlor regarding no-contest terms, New Hampshire's laws make contesting a will and trust more difficult since enforcement doesn't require probable cause or good faith – another reason to move or establish a trust in New Hampshire!
Footnotes
1 RSA 243:1, III.
2 RSA 243:1, II.
3 2011 N.H. Laws, Ch. 243, effective September 11, 2011.
4 See also Shelton v. Tamposi, No. 316-2007-EQ-2109, 2010 N.H. Super. LEXIS 78 (Aug. 18, 2010), (where the court upheld an in terrorem clause in a revocable trust disqualifying a trust beneficiary who instituted litigation in bad faith) citing Burtman v. Butman, 97 N.H. 254 (1952); and Keener v. Keener, 682 S.E. 2d 545 (Va. 2009).
5 RSA 551:22, V. and RSA 564-B:10-1014 (e).
6 RSA 551:22, I.
7 See also Johnson v. Greenelsh, 217 P.3d 1194 (Cal. 2009) (where the court held a petition to compel arbitration pursuant to the terms of the trust did not violate a no-contest clause); and Cook v. Cook, 99 Cal. Rprtr. 3d 913 (Ct. App. 2009) (where the court held a beneficiary's pleading violated a no-contest clause when it asserted that debts he owed to his parents were unenforceable which would have resulted in an increase in his trust share).
8 RSA 551:22, I (a)-(d) and RSA 564-B:10-1014 (a)(1)-(4).
9 RSA 551:22, I. and RSA 564-B:10-1014 (a).
10 RSA 551:22, II and RSA 564-B:10-1014 (b).
11 RSA 551:22, II and RSA 564-B:10-1014 (b).
12 See RSA 551:22, II and RSA 564-B:10-1014 (b).
13 RSA 551:22, III (a) and RSA 564-B:10-1014(c)(1).
14 RSA 551:22, III (b) and RSA 564-B:10-1014(c)(2).
15 RSA 551:22, III (c) and RSA 564-B:10-1014(c)(3).
16 RSA 551:22, III (d) and RSA 564-B:10-1014(c)(4).
17 Burtman v. Butman, 97 N.H. 254, 257 (1952).
18 Burtman v. Butman, 97 N.H. 254 (1952).
19 Id.
20 Id.
21 Burtman at 259.
22 Id.
23 In re Shumway, 9 P.3d 1062 (Ariz. 2000).
24 In re Shumway, 9 P.3d 1062, 1066 (Ariz. 2000), citing RESTATEMENT (SECOND) OF PROPERTY: Donative Transfers § 9.1 (1983).
25 See 7 DeGrandpre, NH Practice: Wills, Trusts and Gifts (4th ed.2003) §17.02.
26 Wells v. Anderson, 69 N.H. 561 (1899).
27 Wells at 561.
28 Wells at 561-62.
29 In re Estate of Stewart, 113 N.H. 179 (1973).
30 Id. at 180.
31 See In re Gibbs, 110 N.H. 185, 186 (1970); Burpee v. Pickard, 94 N.H. 307, 308 (1947).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.