Forfeiture clauses are tough estate battles, and this particular case may have a major impact on how these clauses are used in the future.
In Ard v. Hudson, in 2015, a beneficiary charged co-executors with a breach of fiduciary duty and wanted the court to provide an accounting, temporary injunctive relief and a receiver. The court tossed out the complaint, because the will had a no-contest clause. But that wasn’t the end of the battle.
JD Supra’s article, “Texas Supreme Court Accepts A Case Dealing With A No-Contest Clause,” picks up the story where the Court of Appeals said that a breach of a forfeiture clause will be found only when the beneficiary’s or devisee’s actions fall clearly within the express terms of the clause. The Court supported its decision with its previous decisions as precedent, where challenging a fiduciary did not trigger a no-contest clause.
The defendants argued that the beneficiary’s requests for temporary and permanent injunctive relief and her motions to suspend her brothers as co-trustees and to appoint a receiver, triggered the no-contest clause.
However, the Court held that the inherent right to challenge a fiduciary would be worthless without the beneficiary’s corresponding inherent right to seek protection during an ongoing challenge of what’s left of his or her share of the estate that the grantor intended the beneficiary to have.
The defendants also argued that each benefit of the estate was made on the condition that the beneficiary accepts and agrees to all of the provisions of the will. The Court rejected this argument and reversed the summary judgment.
The executors/trustees have filed a petition for review with the Texas Supreme Court, which will hear the case in March.
This appeal also involves Texas Estates Code § 254.005, which says that no-contest clauses won’t be enforced where there’s just cause for bringing the action and the action was brought in and maintained in good faith. The Texas Supreme Court has not previously addressed this statute.
Attorneys routinely warn individuals who disagree with a will containing a no-contest clause, that they are risking everything if they want to bring a claim. There’s no way to know what a court or a jury will do. The Texas Supreme Court case will be watched carefully.
Reference: JD Supra (January 20, 2017) “Texas Supreme Court Accepts A Case Dealing With A No-Contest Clause”