Many wills and trusts contain one or more “no contest” provisions. Although the exact wording of “no contest” provisions may be slightly different depending on the specific will or trust at issue, substantially all such provisions have one goal in mind: preventing actual or potential beneficiaries from challenging the terms or administration of a will or trust and threatening those who decide to do so with the loss of their entitlement to property or assets passing under the will or trust.
“No contest” provisions therefore present beneficiaries under a will or trust with a dilemma in cases where such beneficiaries feel that the terms of a will or trust do not reflect the true wishes of the deceased or that the will or trust is not being properly administered. In such cases, a beneficiary is faced with a difficult choice between: (1) remaining silent about perceived problems with the terms or administration of a will or trust; or (2) speaking up and risking the application of a “no contest” provision, resulting in the potential loss of entitlement to property or other assets passing under a will or trust.
Fortunately, a recent decision by the Supreme Court of Virginia reaffirms certain long-standing principles regarding the interpretation and application of “no contest” provisions and illustrates a scenario in which a beneficiary may have the ability to voice his or her discontent with the manner in which a trust is being administered without running afoul of a “no contest” provision in the trust.
In Rafalko v. Georgiadis, et al., a father amended and restated an existing trust to, among other things, eliminate a previously required distribution of assets to his sons upon the father’s death and to instead call for the distribution of those assets to his new wife. Under the terms of the amended trust, the sons would only be entitled to receive assets after the death of the wife. Naturally, the sons were upset by the terms of the amended trust because it no longer provided for them or their families during the lifetime of the wife.
One of the sons voiced his discontent in a letter to the attorney who drafted the trust in which the son stated that the trust “will be the subject of a contest.” The son also wrote a letter to the wife (the primary beneficiary under the amended trust) asking that she agree to terminate the trust and distribute its assets with one-third going to each of the sons, and warning that, if the sons were forced to file suit to set aside the trust, they would argue that the father was subjected to undue influence in making the changes to the trust that eliminated the sons’ entitlement to a distribution of assets.
Unbeknownst to the son at the time he sent the letters described above, the father had executed yet another amendment to the trust documents that included a “no contest” clause. That clause stated that “if any beneficiary or potential beneficiary under this trust agreement shall directly or indirectly, by legal proceedings or otherwise, challenge or contest this trust agreement or any of its provisions, or shall attempt in any way to interfere with the administration of this trust according to its express terms, any provision I have made in this trust agreement for the benefit of such beneficiary shall be revoked.”
In other words, it appeared that the son could potentially lose his entitlement to any benefits under the trust merely by virtue of challenging, or threatening to challenge, the terms and administration of the trust in the letters described above. In fact, the trustee of the trust took that very position by claiming that the letters written by the son were an attempt to interfere with the administration of the trust, which justified disqualifying the sons as beneficiaries under the trust. Unfortunately for the sons, the Circuit Court agreed and upheld the disqualification of the sons’ respective interests under the trust,
However, the Supreme Court of Virginia overturned the Circuit Court’s decision in this regard, finding instead that the son’s letters did not constitute a violation of the “no contest” provision and that the sons were therefore not disqualified as beneficiaries under the trust. The Supreme Court’s discussion of the issue offers some guidance to beneficiaries considering challenging the terms of a will or trust that contains a “no contest” provision.
First, the Supreme Court restated the well-settled principle that a “no contest” provision should be “strictly construed” and read “narrowly,” meaning that a court will look closely at the actual language of the provision to determine whether a particular action qualifies as the sort of conduct prohibited by the provision. Looking at the specific facts of the Rafalko case, the Court found that the “no contest” provision only prohibited actual attempts to interfere with the administration of the trust, not the mere proposal of future actions that may interfere with administration or statements of a desire to terminate the trust. Because the son’s letters only threatened a potential lawsuit to challenge the trust, the letters did not run afoul of the prohibitions of the “no contest” provision.
Second, the Court noted that the letters were not sent to the trustee directly and did not necessitate any action by the trustee or affect the trust’s administration. Instead, the letters merely expressed the sons’ discontent with the terms of the trust and indicated their interest in a potential non-judicial settlement of the dispute as permitted by Virginia law. Because the letters had no actual effect on the trustee’s administration of the trust, the Court found that the sons had not violated the “no contest” provision in the trust.
There are several important lessons to be learned from the facts and circumstances of the Rafalko case.
Perhaps the most important lesson is that beneficiaries considering challenging the terms of a will or trust, or even merely voicing their discontent about how a will or trust is being administered, should seek the advice of an attorney before taking any action, no matter how informal. Although the sons in Rafalko ultimately prevailed, they had to endure the expense and burden of taking their case all the way to the Supreme Court of Virginia. And, they had to do so even though they took an action that most people would think was totally harmless – namely, merely sending a letter indicating their displeasure with how the trust was being administered.
It is therefore critical that beneficiaries who feel that there may be problems with the terms or administration of a will or trust contact an attorney as soon as possible – and before taking any sort of action – to help come up with a strategy that minimizes the risk of potentially losing the right to receive property or other assets by virtue of a “no contest” provision.
Another lesson demonstrated by the Rafalko case is that, even if a will or trust does contain a “no contest” provision, it does not necessarily mean that a beneficiary has no options for challenging the terms or administration of a will or trust. Instead, a beneficiary should seek the aid of an attorney to determine precisely what is and is not prohibited by the specific “no contest” provision at issue. While some “no contest” provisions may be very broad, others, like the one in the Rafalko case, may be more narrow, and might therefore allow beneficiaries to voice their concerns without putting their entitlement to property or assets under a will or trust in jeopardy.
Finally, the Rafalko case also illustrates the importance of beneficiaries ensuring that they have the most recent version of a will or trust before taking any sort of action. At the time they first voiced their concerns about the terms and handling of the trust, the sons were unaware that the trust had been amended to include a “no contest” provision. Had they known about the amended trust and the existence of this provision, they would likely have been more careful about how they approached the issue. Again, the assistance of an attorney familiar with wills and trusts is critical in ensuring that beneficiaries exercise all of the rights to which they are entitled under the law, including the right to obtain copies of the most recent versions of trust documents.
In sum, the Rafalko case illustrates the many risks and difficulties that beneficiaries can face if they attempt to raise concerns about the terms or administration of a trust without the guidance of an attorney.
The attorneys at Weisberg & Weisberg, PLLC are equipped to assist beneficiaries, trustees, and others claiming rights under a will or trust with a wide variety of issues, including developing strategies for effectively raising challenges to the terms or administration of a will or trust, and also for defending against or otherwise responding to such challenges. Our firm can also assist you with preparing a will or trust that includes a “no contest” provision in order to protect against subsequent challenges by beneficiaries or others.
PLEASE NOTE THAT THE FOREGOING IS OFFERED FOR GENERAL INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONSTITUTE, NOR SHOULD IT BE INTERPRETED AS CONSTITUTING, LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DISCUSS THE UNIQUE FACTS AND CIRCUMSTANCES OF YOUR CASE.