Over the past two years, a significant number of appellate courts in jurisdictions throughout the country have faced trust provisions that purport to disinherit any beneficiaries who challenge a trustee's decision making. Such provisions to "secure compliance ... with dispositions of property"--known as "forfeiture," "no-contest," "anti-contest," or "penalty" clauses--have appeared in wills for well more than a century. But the trust clauses differ from their testamentary counterparts and thus deserve serious scrutiny in their own right, especially because the abundance of recent cases has led to increasingly inconsistent and haphazard approaches. This Article exposes the problems that trust forfeiture clauses pose, in comparison to will forfeiture clauses, and proposes some solutions.
Trusts, rather than wills, have become the primary vehicle for property owners to distribute their valuables at death. Courts and legislatures profess to treat trust and will forfeiture clauses identically, but doing so has resulted in significant confusion because this approach ignores that the two donative vehicles, and the most common challenges to them, differ in fundamental ways. Indeed, wills are most frequently contested by beneficiaries who claim the document itself is invalid, either because it was executed without the requisite formalities or because the testator lacked capacity, was induced to sign the instrument against her free will, or revoked it in favor of some alternative disposition. Typical testamentary forfeiture clauses seeking to prevent these types of claims therefore provide that anyone who challenges the will forfeits any interests received under it; if the contestant is successful, the court invalidates both the will and the forfeiture clause. In contrast, the majority of trust litigation arises from disagreements between the beneficiaries and the trustees over how the latter invest, manage, and distribute property. Seeking to incentivize beneficiaries to go along with trustee decision making, some settlors and their advisors have purposely broadened the scope of forfeiture clauses so that they apply not only to contests that challenge the validity of the trust agreement but also to claims of fiduciary misconduct or mismanagement. But a provision that discourages breach of duty claims against trustees by dictating that anyone who files such a claim forfeits her beneficial interest allows fiduciaries to escape oversight, thereby forfeiting the very qualities that define trust law in the first place.
This Article exposes the conflicting ways that courts and legislatures have been grappling with these clauses that pit settlor intent not against a general distaste for forfeiture, but instead against fiduciary accountability. After examining the roots of this confusion, the Article proposes a more coherent approach to trust forfeiture clauses that recognizes property owners' interests in facilitating smooth relationships between their trustees and beneficiaries without forfeiting the precious oversight that allows trusts and the parties to a trust relationship to function properly.
TABLE OF CONTENTS INTRODUCTION I. WILLS AND FORFEITURE CLAUSES A. Background, and Purposes B. Enforceability of Testamentary Forfeiture Clauses: Jurisdictional Variations II. INTER VIVOS TRUSTS AND MODERN ESTATE PLANNING A. The Inter Vivos Trust in Modern Estate Planning: Benefits B. The Inter Vivos Trust in Modern Estate Planning: Challenges C. How Trusts' Structures and Uses Have Affected Trust Forfeiture Clauses III. TRUSTS AND FORFEITURE CLAUSES A. Public Policy and Fiduciary Duties: The California Approach B. Settlor Intent and Trustee Expertise: Enforcing Forfeiture Clauses C. The Uniform Trust Code and the Restatement (Third) of Trusts IV. MUST TRUST FORFEITURE CLAUSES FORFEIT TRUST? A. Drafting Considerations B. A Proposal for Enforcing Trust Forfeiture Clauses: Using Exculpatory Clause Law as a Model CONCLUSION
"Experience has shown that often, after the death of a [property owner] ... contests are commenced wherein not infrequently are brought to light matters of private life that ought never to be made public, and in respect to which the voice of the [property owner] cannot be heard either in explanation or denial; and, as a result, the manifest intention of the [property owner] is thwarted. It is not strange, in view of this, that [property owners] have desired to secure compliance with their dispositions of property, and have sought to incorporate provisions which should operate most powerfully to accomplish that result." (1)
Imagine a mother who has three adult children, two of whom she sees regularly to celebrate daily triumphs and periodic disappointments and one of whom has moved far away and maintains only erratic contact with the family. These significantly different relationships may prompt the mother to bequeath her property to the three children in unequal shares. Whether the mother's decision is whimsical or justified is legally unimportant, (2) because a person's ability to dictate how and to whom her property flows at death is "[t]he dominant substantive principle of the law of gratuitous transfers." (3) This ability is also the source of significant personal disarray that may result when loved ones feel slighted. Indeed, of all the legacies that a property owner can leave behind, the most valuable is not her ancestral home, unfinished manuscript, or diamond jewelry, but rather a smooth and harmonious transition of ownership, without resentment, challenge, or contest. (4) It is therefore not surprising that most United States jurisdictions respect a decedent's written direction that any beneficiary who "contests" that decedent's will forfeits the right to inherit under it. (5) Such provisions to "secure compliance with ... dispositions of property"--known as "forfeiture," "no-contest," "anti-contest," or "penalty" clauses--have appeared in wills for well more than a century, as the 1898 Supreme Court case quoted above indicates. (6) By coupling such a clause with a gift of some significance, a property owner can incentivize a disgruntled beneficiary to accept what she has received and walk away, thereby serving the "compelling" (7) goals of preventing litigation, maintaining privacy, and encouraging family harmony. (8)
Over the past two years, a significant number of appellate courts in jurisdictions throughout the country have confronted forfeiture clauses in trusts rather than in wills. (9) But because trust forfeiture clauses purport to disinherit beneficiaries who challenge trustee decision making, they differ significantly from their testamentary counterparts and thus deserve serious scrutiny in their own right. To date, however, this case law trend has gone virtually unnoticed, (10) leading to an increasingly inconsistent and haphazard approach in the courts. This inconsistency results because each of the jurisdictions to confront the analytic underpinnings of a trust forfeiture clause has searched for guidance linearly, looking back to its law on testamentary forfeiture clauses, rather than more comprehensively. The purpose of this Article is to expose the problems that trust forfeiture clauses present, in comparison to will forfeiture clauses, and to propose some solutions.
Trusts, (11) rather than wills, have become the primary vehicle for property owners--known as settlors--to distribute their valuables at death. (12) Although courts and legislatures profess to treat trust and will forfeiture clauses identically, (13) doing so has resulted in significant confusion because this approach ignores that the two donative vehicles, and the most common challenges to them, differ in fundamental ways. (14) Wills are most frequently contested by beneficiaries who claim the document itself is invalid, either because the testator executed it without the requisite formalities, lacked the required capacity, was induced to sign the instrument against her free will, or revoked it in favor of some alternative disposition. (15) Typical testamentary forfeiture clauses seeking to prevent these types of claims therefore provide that anyone who challenges the will forfeits any interests received under it; if the contestant is successful, the will (including the clause) is invalidated. (16)
Perhaps because most trusts last for far longer than the administration of most estates, (17) the majority of trust litigation--and there is plenty--arises from disagreements between the beneficiaries and the trustees over how the trustees invest, manage, and distribute the property rather than from qualms with the trust agreement's initial validity. (18) Seeking to incentivize beneficiaries to go along with trustee decision making, some settlors and their advisors have purposely broadened the scope of forfeiture clauses so that they apply not only to contests that challenge the validity of the trust agreement but also to claims of fiduciary misconduct or mismanagement. (19) But a provision that discourages breach of duty claims against trustees by dictating that anyone who files such a claim will forfeit her beneficial interest allows fiduciaries to escape oversight, thereby forfeiting the very qualities that define trust law in the first place.
This Article exposes the conflicting ways that courts and legislatures have been grappling with these clauses that pit settlor intent, not against a general distaste for forfeiture, but instead against fiduciary accountability, and it proposes solutions both for those who are planning trusts and for those who are interpreting them. The Article proceeds in four parts. Part I describes forfeiture clauses generally, including how they have been triggered by beneficiaries' challenges to will validity although not by requests for document clarification and construction. It then briefly surveys different jurisdictions' standards for enforcing traditional (in other words, testamentary) forfeiture clauses. Part II looks at the important role management trusts have come to play in estate planning in order to explain why forfeiture clauses are appearing in trust agreements with increasing frequency and how trusts' divided ownership and long-term duration affect those clauses.
Part III describes recent cases that have tried to negotiate the two important interests that trust forfeiture clauses put at odds--settlor intent and trustee accountability--with vastly different and mostly confusing results. This Part also describes legislative attempts to address trust forfeiture clauses, including a draft provision in the Restatement (Third) of Trusts. Part IV proposes a more coherent and balanced approach to trust forfeiture clauses, both from a forward-looking (or planning) and a backward-looking (or administrative) perspective. This Part cautions against including these provisions regularly and advocates for treating the clauses as presumptively invalid but not void. The burden-shifting approach that this Article proposes acknowledges the settlor's interest in facilitating a smooth relationship between her fiduciary and beneficiaries without forfeiting the precious oversight that allows trusts to function properly.
I. WILLS AND FORFEITURE CLAUSES
With testamentary intent as the driving force of inheritance law, (20) it is not surprising that the vast majority of jurisdictions allow a property owner to disinherit a beneficiary who chooses to contest an estate plan. (21) Many jurisdictions have cautioned that such clauses must be strictly construed (22) and have restricted the settlor's "dead hand" power by refusing to allow disinheritance of a beneficiary who has brought a contest in "good faith" or with "probable cause." (23) While some scholars have argued that anything short of absolute enforcement of forfeiture clauses threatens to eviscerate the purposes of such clauses altogether, (24) property owners continue to include forfeiture clauses in their testamentary documents (25) and courts continue to disinherit beneficiaries as a result of them. (26) These clauses therefore have proven to be a powerful tool for striking a balance between testators' donative freedom, including the understandable desire to discourage wasteful and vexatious litigation, and the probate system's interest in enforcing wills that are, in fact, valid.
A. Background and Purposes
Forfeiture clauses are designed to dissuade dissatisfied beneficiaries from disrupting an estate plan. (27) Although infinitely varied, a typical forfeiture clause will provide:
If any beneficiary under this Will shall in any manner contest or attack this Will or any of its provisions, then in such event any share or interest in my estate given to such contesting beneficiary under this Will is hereby revoked and shall be disposed of in the same manner provided herein as if such contesting beneficiary had predeceased me. (28)
The clauses are directed towards the most common types of will "attacks," which contest the validity of the testamentary instrument or any of its components. (29)
When a court considers whether to enforce a forfeiture clause and thereby sever the interests of a beneficiary who has filed or participated in a contest, the court often will discuss two overarching but diametrically opposed policies (30): inheritance law's respect for testamentary freedom, and equity's distaste for forfeiture. (31) In favor of enforcing the clause and disinheriting the beneficiary is the often-repeated and well-entrenched rule that prioritizes donative intent above other concerns. (32) Because a property owner can manifest that intent by disinheriting whomever she chooses, unless a specific statutory provision bars such dispossession, (33) she also can place a condition on a bequest, such as one that prohibits a contest, so long as the condition does not violate public policy. (34) The rationale is that conditioning the bequest is something less than complete disinheritance and gives the beneficiary a choice to accept or reject the condition (and the property). (35) Other justifications for forfeiture clauses in wills include that "upholding ... such clauses avoids wasting the testator's estate by discouraging needless litigation" (36) and that a testator "should be able to avoid having details of his private life made public when he cannot be heard in explanation." (37)
On the other hand, courts construe forfeiture clauses "strictly and narrowly" based on the equally pervasive idea that "equity abhors a forfeiture." (38) Whether this phrase is, as Professor Martin Begleiter claims, a conclusory reference to a narrow and inapplicable contract doctrine (39) or, more broadly, an expression of concern that litigants receive procedural (and not just substantive) fairness, (40) it has justified a narrower view of forfeiture clauses' reach. To the extent that a beneficiary "plainly and palpably [fits] within the scope of the forfeiture clause" a court is not to quibble over or "put a strained or overtechnical construction" on the clause's language to allow that person to "escape the penalty of forfeiture" by "some hook or crook." (41) But mindful of the potentially extreme result of such a clause, which effectively deprives a beneficiary of the opportunity to claim property she believes is rightfully hers, a court will take a conservative approach in deciding whether the specific language of the clause applies to the precise "contest" that the beneficiary has mounted. (42) As Professor Jack Leavitt noted some years ago when discussing this policy of strict construction, one court, for example, even declined to enforce a forfeiture clause against a beneficiary who participated in a will contest that had been filed some months earlier because the clause stated that it applied to beneficiaries who "instituted" challenges, and the beneficiary in question simply joined an ongoing contest. (43) The rationale harkens back to donative intent: "if the testator had wished the loss of the beneficiary's bequest to result from the conduct at issue, the testator could have drafted the will to accomplish that result." (44)
B. Enforceability of Testamentary Forfeiture Clauses: Jurisdictional Variations
These overarching policies--donative freedom but conservative construction--have led to variations for enforcement of will forfeiture clauses based on how a jurisdiction prioritizes the competing interests. Only two states--Florida and Indiana--refuse to recognize forfeiture clauses at all as a matter of public policy. (45) Georgia requires, as a prerequisite to enforcement of a forfeiture clause, that the property owner include a gift-over clause specifying what is to become of the disinherited beneficiary's share. (46)
In contrast to these restrictive approaches that limit the influence of forfeiture clauses and thus the testator's power to incentivize harmony among her heirs and ensure compliance with her wishes, (47) a sizable minority of states enforce the clauses absolutely, so that any beneficiary who brings a "contest," as defined in the language of the instrument, will be disinherited if the will turns out to be valid and admissible. (48) These jurisdictions do not look at the beneficiary's factual basis for contesting the testamentary instrument. If the beneficiary's claims fail, she forfeits her inheritance regardless of whether she had a valid reason for complaining; if she succeeds in discrediting the will, of course, the entire document--including its forfeiture clause--will be struck down, and the property will pass either through intestacy or pursuant to the terms of an earlier instrument. (49) This approach encourages beneficiaries to think seriously about the merits of their claims before filing suit, although threat of disinheritance has less impact on beneficiaries who receive only token bequests (and therefore have less to lose). (50) The threat also may dissuade needier or risk-averse beneficiaries from suing, even if their qualms are valid. (51)
Most states take an intermediate position on will forfeiture clauses, recognizing and enforcing them unless the beneficiary who has contested the document had "probable cause" to initiate the challenge. (52) In this context, "[p]robable cause exists when, at the time of instituting the proceeding, there was evidence that would lead a reasonable person, properly informed and advised, to conclude that there was a substantial likelihood that the challenge would be successful." (53) If the contest fails and the will is admitted to probate, a beneficiary who had adequate reason to bring the contest (54) will not be deprived of her bequest. (55) Although this compromise approach has been criticized as incurring additional costs and undermining testator intent, (56) it is the approach that both the National Conference of Commissioners on Uniform State Laws and the American Law Institute favor. (57) The primary policy justification for refusing to disinherit a beneficiary who has "probable cause" to contest a will, even if her claim ultimately does not succeed, is that the beneficiary is providing the court with knowledge that helps the court ascertain whether the will should be probated. (58) Other justifications include a reluctance to restrict the beneficiary's access to the courts and a desire to protect the interests of vulnerable beneficiaries. (59) Because the outcome of a will contest is often tremendously difficult to predict, especially when a beneficiary is claiming undue influence over an elderly or infirm testator, (60) this approach uses the probable cause standard (or a variant on it) to temper the harsh result of total disinheritance while respecting the testator's interest in discouraging litigation. (61)
In addition to these general but jurisdiction-dependent approaches to traditional forfeiture clauses, there are several categories of will challenges that historically have not triggered disinheritance, regardless of whether the contestant had sufficient reason to file a lawsuit. First, any challenge to a will brought by a beneficiary in her fiduciary capacity typically does not result in that beneficiary losing her inheritance. (62) In other words, if a beneficiary who is also an executor seeks to discredit a provision of the will, courts have reasoned that her position as a fiduciary, rather than as a beneficiary, burdens her with the obligation to raise questions about the document's legality that do not serve the testator's purposes of discouraging litigation. (63) The fiduciary is simply doing the job assigned to her by the testator--effectuating rather than disrupting the estate plan--even if the challenge provides her with a personal benefit. (64)
Second, a proceeding to determine the meaning of provisions in a will, otherwise known as a construction proceeding, ordinarily does not trigger forfeiture. (65) The primary justification for distinguishing this type of action is that it involves beneficiaries who are seeking to clarify what the testator actually meant and therefore to implement, rather than impede, the testator's intent. (66) In response to this argument, though, Professor Begleiter has pointed out that these construction actions are not "altruistic attempt[s] to ascertain ... true intention" but rather are an attempt by the beneficiaries "to create an ambiguity and to take more for themselves." (67) Nevertheless, many statutes, cases, and clauses expressly exempt "construction proceedings" from the definition of "contest." (68)
The third category that traditionally has not triggered forfeiture, and the most pertinent to this Article, involves actions by beneficiaries who are asking a court to remove an executor or to order an accounting of estate assets. (69) Because these cases frequently involve clauses, like the one quoted at the beginning of this section, that prohibit attacks to the will or any of its provisions, courts have reasoned that actions challenging some aspect of estate administration do not fall within the prohibition of "contests" to the will. (70) Where, however, the word "contest" is interpreted more liberally, courts have refused to disinherit a beneficiary who requests an accounting or criticizes an executor based on the rationale that the testator could not have intended to insulate the fiduciary from her obligation to disclose what she is doing and from accountability generally. (71)
An important difference between these will cases and the trust cases that have arisen recently and are discussed in Part III below is that estate planners have expanded the breadth of the forfeiture clauses that are appearing in trust agreements, (72) thereby clarifying that the property owners do intend the clauses to apply to contests that question both document validity and ongoing fiduciary conduct. (73) Faced with this express language and display of intent, courts and legislatures have had to decide whether these conditions that settlors impose on beneficiaries' initial and continued right to receive property under a trust are valid when the conditions constrain, to some degree, the beneficiaries' ability to police their trustees.
II. INTER VIVOS TRUSTS AND MODERN ESTATE PLANNING
Where forfeiture clauses were once less common in trust agreements than in wills, (74) recent case law reveals settlors' rapidly increasing reliance on these clauses to deter trust beneficiaries from mounting challenges. (75) This evolution is natural and expected, because a forfeiture clause that appears solely in a will is likely to have little effect on a beneficiary's conduct when the decedent's assets "pour" (76) from the estate into the trust and are allocated among the beneficiaries by means of the trust agreement. (77) But trusts differ from wills because they usually last for an extended period of time and because, during that period, they vest ownership and control of the property in the hands of a trustee. (78) Indeed, the fiduciary relationship between the property's legal owner--the trustee--and the property's beneficial owners is the cornerstone of trust law. (79) The rising use of expansive trust forfeiture clauses is problematic because by disinheriting beneficiaries who seek oversight of this fiduciary relationship, the clauses threaten to forfeit trust altogether. The balance of this Part describes the rise of the management trust in modern estate planning, including this donative vehicle's benefits and challenges and, in particular, how those characteristics have resulted in trust forfeiture clauses that are far broader than their will counterparts and forbearers.
A. The Inter Vivos Trust in Modern Estate Planning: Benefits
Although trusts have been around since the thirteenth century, (80) the modern era of succession has seen the revocable inter vivos trust rival the will as the primary vehicle for transmitting wealth at death. (81) There are many reasons for this shift, even in modest estates where planning to avoid taxes is less important. The most well-known advantage, touted by the do-it-yourself community, (82) is that assets held in a trust do not pass through probate and thus avoid the administrative inconvenience for which some jurisdictions' probate courts are famous. (83) Almost as popular a reason for using a trust rather than a will to divide and disburse assets is the privacy these vehicles afford. (84) Thus, although the public has scrutinized and dissected estates of celebrities like Michael Jackson, Robin Williams, and Joan Rivers, the specifics of these public figures' plans have remained private because each has used a trust-- revocable during life but fixed at death--to distribute and presumably manage assets. (85) Inter vivos trusts also provide greater ongoing jurisdictional flexibility than testamentary trusts, allowing a trust's situs to be shifted should doing so become useful. (86)
Benefits that stem specifically from the management aspects of inter vivos trusts provide additional reasons for the popularity of these planning devices. If a settlor decides to fund her trust during life, the trustee can help manage the assets without court intervention even if the settlor's ability to manage them herself diminishes, thereby ensuring continuity and avoiding the costs and administrative inconvenience of a formal, court-supervised guardianship or conservatorship proceeding. (87) Following the settlor's death, the advantages of trust planning over outright gifts are equally meaningful. Trusts can provide beneficiaries with protection from most creditors, including tort victims and even ex-spouses. (88) Trusts also impose a measure of control over beneficiaries' access to funds over time; a settlor who is concerned that the objects of her bounty might not use or invest funds wisely can vest decision making with a trusted individual or institution responsible for managing and distributing the property. (89)
B. The Inter Vivos Trust in Modern Estate Planning: Challenges
Although donative trusts can provide significant advantages over outright bequests, they also pose weighty design and administrative challenges that stem from the fact that trusts separate beneficial from legal ownership and usually involve administration of property over an extended period of time. (90) As I have explained in a previous article:
no property owner can predict perfectly how the years will affect her beneficiaries and her possessions. Beneficiaries' needs will change, for example, as the beneficiaries marry or divorce, start or lose a business, or develop or overcome an illness or addiction. Investments too will change, for example, by under or over-performing, reacting to world events, or re-forming into a different shape altogether. How the settlor would want her gift to accommodate these endless permutations is difficult to anticipate and therefore to counsel, which is a particular problem in a legal realm where the typical court resolving such a dispute would prioritize the settlor's intention over all else. (91)
In my previous work, I have noted that "[t]here are two possible approaches to this planning dilemma, and most trust arrangements combine gradations of each." (92) The first approach is "to draft a trust agreement that provides the trustee with clear distribution standards, describes the settlor's primary concerns, and dictates responses to various contingencies that are likely to arise." (93) With this approach, however, the parties must be willing to bear the administrative costs of drafting for contingencies. (94) Moreover, the directives work well only if the settlor's predictions are accurate. (95) Recognizing that all the planning in the world still cannot control the future, the second approach to dealing with the imperfect foresight that accompanies a gift over time is to repose significant discretion in a trustee. (96) In other words, the trust agreement's distributive and investment directives are drafted to allow the trustee flexibility to deal with whatever inevitable uncertainties time may engender. (97)
As inadequate as the first approach may seem because of the costs associated with trying to anticipate what will happen in the future and the gaps and chinks that are likely to appear with the passage of time, (98) the second approach is equally troublesome. The second approach offers little reassurance to the settlor that her vision will be followed, scant guidance to the trustee on how best to accommodate the different interests of the beneficiaries and the settlor, and few guideposts to the beneficiaries on whether the trustee is acting in accordance with the trust that the settlor has reposed in her. In fact, what this approach offers is a relationship situated in the context of standards for fiduciary conduct generally. (99) The greater the discretion, the more important fiduciary duties are to ensuring that the trust functions properly, that the trustee does not take advantage of her position, and that she devotes sufficient attention to the trust. (100) After all, the trustee wields significant power based not only on her legal ownership and control of the trust property, but also on her superior access to information and, in many cases, the experience, expertise, and even status that caused her to be appointed in the first place. (101)
The duties imposed on a trustee are the most fundamental component of a trust relationship because they help keep the fiduciary accountable to the beneficiaries. (102) For that reason, trust law has traditionally placed limits on the entrustor's ability to circumvent or modify these duties, including the extent to which settlors may exculpate their trustees for mistakes. (103) Many jurisdictions have allowed a settlor to include a provision in a trust instrument exonerating a trustee for conduct taken in connection with her appointment as trustee, but these jurisdictions have placed both substantive and procedural limits on the enforcement of such clauses. (104) With respect to substance, a settlor may excuse a trustee for negligent conduct or permit a trustee to engage in specified self-interested transactions, but may not relieve a trustee from liability for "breach[es] committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries" (105) because doing so "would be to authorize the trustee to loot the trust." (106) Under these circumstances, courts have rejected settlor intent in favor of the concern that a trustee should act to serve the beneficiaries' interests and be accountable for her decisions. (107) With respect to process, a trustee bears the burden of demonstrating that an exculpatory clause was fairly negotiated with the settlor and therefore reflects her intent, acquiescence, and understanding. (108) The rationale for enforcing exculpatory clauses, subject to these safeguards, is very much akin to the rationale supporting forfeiture clauses: the property belongs to the settlor and is freely devisable pursuant to her direction and conditions. (109)
C. How Trusts' Structures and Uses Have Affected Trust Forfeiture Clauses
The most common challenges to trusts do not mirror the most common challenges to wills. There certainly are cases in which trust beneficiaries challenge the validity of a trust agreement based on the settlor's lack of capacity or a third party's undue influence. (110) In fact, a trust beneficiary theoretically has "a better chance of prevailing in a trust contest for lack of capacity as compared to a will contestant" because in many jurisdictions the capacity required to execute a trust is greater than the minimal capacity required to execute a will. (111) A forfeiture clause that discourages challenges to a trust agreement's validity deserves to be treated identically to a will forfeiture clause; the beneficiary who is considering whether to file a contest in the face of this type of clause knows that a "worthless" challenge, however defined, (112) will risk the inheritance the beneficiary otherwise receives. Like a litigant who is considering whether to settle a lawsuit, (113) the beneficiary can assess her options in light of a generally fixed factual context and can complain, or forbear from complaining, depending on how she values her risks and rewards. Allowing a settlor to include this traditional but narrow type of forfeiture clause to deter overly litigious beneficiaries is a fair way to balance the settlor's right to control her legacy against the inheritance system's responsibility to enforce only legitimate testamentary documents.
With the rise in the use of living trusts as property management devices, it has become more difficult as a practical matter to challenge trust agreement validity. (114) As noted above, an important advantage to inter vivos trusts is that they can be funded during life and used to administer, invest, and distribute assets during and even after a settlor loses capacity. (115) Although the trust is revocable, the settlor is the only person who can mount any challenges to it; the remaindermen must wait until the settlor's death before their interests vest and they have standing to bring a contest. (116) It is far more difficult to invalidate a trust agreement, or even one of its provisions, based on a claim that the settlor was unaware or not in control of what she was doing when she signed the agreement, or that she revoked it or did not execute it with the proper formalities, if the trust was funded and functioning during the settlor's life and she lived with its terms and received notice of its operations for some period of time. (117)
Many lawsuits involving trusts recognize the trust agreement's validity but claim that a trustee breached one or more fiduciary duties under that agreement, such as investing improperly, (118) favoring one beneficiary over another, (119) failing to share information or file accounts, (120) making ill-advised or unauthorized allocations or distributions, (121) or acting beyond the powers set forth in the trust instrument or under the law. (122) Because the most effective forfeiture clauses are tailored to the type of challenge that a property owner anticipates, (123) a settlor who seeks to deter litigation and incentivize harmony among her beneficiaries understandably would want to direct her forfeiture clause toward the most common types of contests. Not surprisingly, then, cautious and crafty draftspersons, seeking to dissuade beneficiaries from overlitigating, have started to include trust forfeiture clauses that specifically protect decision making by the settlors' hand-picked fiduciaries. (124)
Consider, for example, a trust forfeiture clause that appeared in a 2013 Georgia case and provided that if any of the settlor's four children filed "a legal or equitable challenge to the management decisions made or proposed by [the] trustee during the administration of [the] Trust, or pertaining to the management of the Trust Estate, or in regards to the final distribution of the Trust Estate" and did not succeed, the challenger forfeited all rights created by the trust. (125) Another example appears in a 2013 Arkansas case, "cancel[ling]" the share of any descendant of the settlor who instituted "any action to challenge the provisions of the trusts established by this document, or to attack the validity of such trusts, or to remove [the surviving spouse] as Trustee, or question her actions as Trustee." (126) A 2013 Kansas case describes a clause disinheriting any beneficiary who, among other things, "objected] in any manner to any action taken or proposed to be taken in good faith by the Trustee under said trust or any amendment to it." (127) Some settlors reinforce their motives by including express statements of their reasons for conditioning receipt of property on a beneficiary's acquiescence to the trustee's judgment and conduct. For example, one clause, discussed in a 2013 California case, described the trust's co-creators' aversion to "time consuming and costly litigation concerning the function of [the] Trust and disbursement of the assets," especially since they had "taken great care to designate, through the provisions of [the] Trust, how they want[ed] the Trust Estate distributed." (128)
Although these clauses may vary linguistically, their purpose is the same: to cut down on the most likely challenges, presumably because such challenges can significantly reduce a trust's corpus, through payment of litigation expenses and fees, and can undermine a settlor's design for her property. The next Part describes judicial and legislative responses to these increasingly broad forfeiture clauses.
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|Title Annotation:||trust forfeiture clauses problems and solutions; Abstract through II. Inter Vivos Trusts and Modern Estate Planning, p. 455-484|
|Author:||Gordon, Deborah S.|
|Publication:||William and Mary Law Review|
|Date:||Nov 1, 2015|
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