“The principal issue is whether a will beneficiary who seeks an accounting, alleges breach of fiduciary duty against co-executors, and seeks a receiver, violates a forfeiture clause.”
In 2015, a beneficiary sued the testamentary trustees and executors of a Texas estate for breach of fiduciary duty and also sought an accounting, temporary injunctive relief, and a receiver. Because the will had a no-contest clause, the court threw out the complaint.
But 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.
But 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.
The existence of a no-contest or in-terrorem clause in a will or trust deters litigation. Individuals risk losing assets by bringing claims, because no one can be sure what a court or jury will do. It’s also significant that the Texas Supreme Court has granted review and will be discussing the enforcement of a no-contest clause that doesn’t involve mental competence and undue influence claims—it’s important for will and trust disputes.
Reference: JD Supra (January 20, 2017) “Texas Supreme Court Accepts A Case Dealing With A No-Contest Clause”]