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George F. Bearup, J.D. Senior Legal Trust Advisor

13-Sep-21

No Contest Clause: Effective Even When There’s Undue Influence!

Take-Away: Each state has its own rules when it comes to the enforcement of a ‘no-contest’ clause. Michigan follows the general rule that a ‘no-contest’ provision will be enforced unless the challenger possesses probable cause to institute the challenge. Other states follow different rules, some more stringent, others more lenient. A state like Florida refuses to enforce a ‘no-contest’ clause in any Will or Trust. Then there is a state like Georgia, which will enforce a ‘no-contest’ clause even when there is good faith, and probable cause to challenge the validity of a Will or Trust.

Background: Michigan law provides that a ‘no-contest’ provision in a Will or Trust is unenforceable if there is probable cause to initiate the challenge. This rule applies to Wills [MCL 700.2518] and to Trusts [MCL 700.7113.] The Trust probable cause exception to ‘no-contest’ statute prevails over contrary provisions contained in a Trust. [MCL 700.7105(q).]

Florida an outlier when it comes to ‘no-contest’ clauses. Florida’s law makes it clear that a ‘no-contest’ provision in a Will or Trust is simply unenforceable. In contrast, other states have statutes that, arguably, go to the opposite extreme when it comes to the enforcement of a ‘no-contest’ provision in a Trust. A recent George Court of Appeals decision is an example of just how extreme the Georgia Courts will go to enforce a ‘no-contest’ provision.

Reported Decision: Giller v. Slosberg,  858 S.E. 2d 747 (Georgia Court of Appeals, 2021.)

  • Facts: This decision is part of a long-running dispute in the Georgia Courts that involve a Trust and beneficiary designations. The parent’s two children, Giller and Seidner, were each to receive 40% of the Trust’s assets on the parent’s death, and each was also to receive 40% of the decedent’s IRA and an agency account, e.g. a TOD investment account. A third child, Slosberg, was to receive the remaining 20% of the Trust’s residue, 20% of the IRA, and 20% of the TOD investment account. Slosberg sued Giller and Seidner after their parent’s death. The petition claimed that the Trust’s terms, and the beneficiary designations, were the produce of Giller and Seidner’s undue influence over their parent. The Trust included a ‘no-contest’ cause with respect to any action that sought to ‘revoke or annul any benefits given under the Trust to a beneficiary who contested the Trust’s validity.’
  • Trial Court: A jury found that all three documents, i.e. the decedent’s Trust, the IRA beneficiary designation, and the TOD beneficiary designation, were the product of undue influence. The trial judge then entered a final judgment based on the jury’s verdict that declared the Trust and decedent’s beneficiary designations void. The trial judge also ruled that Slosberg was entitled to one-third of the deceased parent’s estate, and one-third of the amounts in the IRA and the TOD account. A constructive trust was imposed on the assets that Giller and Seidner received from the IRA and TOD account to assure that Slosberg received one-third of those account balances. Slosberg was also awarded pre- and post-judgment interest, court costs, and attorneys fees from Giller and Seidner.
  • Appeals Court: Giller and Seidner appealed the jury’s finding of undue influence. The Georgia Court of Appeals reversed the trial judge’s final judgment as to the Trust because Slosberg violated the Trust’s ‘no-contest’ clause. The finding of undue influence with respect to the IRA and the TOD accounts was permitted to stand.
  • The Court concluded that the Trust’s ‘no-contest’ clause ‘barred any attack on the Trust.’ Therefore, Slosberg’s claims of undue influence with respect to the Trust should never have gone to trial.
  • The Court focused on Georgia’s statutory scheme which validates ‘no-contest’ clauses so long as the Trust’s terms dispose of the property should the ‘no-contest’ clause be violated by a beneficiary. [O.C. G. Section 53-12-22.] This Georgia statute that authorizes ‘no-contest’ clauses with Trusts did not include, as it does with regard to Wills, a prohibition on conditions that are ‘impossible, illegal, or against public policy.’ [Apparently Georgia has no public policy against undue influence.]
  • The Georgia Trust ‘no-contest’ statute, unlike Michigan’s, contains no exceptions for petitions that challenge the validity of a trust that is either filed in good faith or with probable cause. According to the George appellate Court, Slosberg’s petition that asserted undue influence to challenge  the validity of the Trust, “should never have been allowed by the trial judge to proceed to a jury trial.”
  • One appellate judge strongly dissented, asserting that common law provides that any document procured through undue influence is void and of no effect, even if that instrument contains a ‘no-contest’ clause.
  • In sum, even though Slosberg successfully showed through trial evidence that Giller and Seidner had exercised undue influence on their parent with regard to the Trust, Slosberg still forfeited his beneficial interest in the Trust. In Georgia, as a result of this decision, any action brought by a trust beneficiary with respect to the validity of the Trust must automatically be dismissed by the trial judge with the further direction that the challenging beneficiary’s interest in the Trust be disposed of (or forfeited) according to the Trust’s terms.
  • Slosberg was permitted to enforce the judgement that awarded him the one-third of the IRA and the TOD account, but not one-third of the Trust’s assets.
  • [Aside: Georgia’s Trust ‘no-contest’ statute was subsequently amended to permit some petitions filed with the probate court for ‘interpretations or enforcement of the trust instrument,’ an accounting, removal of a trustee, for other relief against the trustee, or entering into a settlement agreement. Probably this statutory amendment would not have helped Slosberg, since the challenge was not based upon an interpretation of the Trust, but a direct challenge to its validity.]

Conclusion:  The Giller case demonstrates the extreme in how states may differ when it comes to the enforcement of a ‘no-contest’ clause. In Michigan, a ‘no-contest’ clause will not be enforced by a court if the petitioner possesses probable cause to challenge the validity of the Trust (or Will.) In Georgia, a settlor who is willing to rely on Giller can prevent virtually any challenge to the validity of their Trust simply by including a ‘no-contest’ clause in the Trust. If a Michigan trust settlor was so inclined, could they direct that their Trust be governed by Georgia law? Probably not, unless the Trust held one or more trust assets located in Georgia.