When a person executes a will, a revocable trust or a similar estate planning tool, there is an expectation that the people in his or her life would respect the expressed wishes and carry out those directions stated. Unfortunately, probate courts across the State of Michigan are full of heirs, beneficiaries and disinherited next-of-kin who were dissatisfied with someone’s estate plan as it pertains to them and are asking a judge or jury to decide what they should be entitled to. The end result is usually thousands of dollars in depleted estate funds and emotional turmoil for the surviving friends and family members of the decedent despite the verdict.
In an attempt to put more teeth into their final wishes, many people include into their estate plans a clause that will penalize any interested person (e.g. heir-at-law, devisee or beneficiary) for instituting litigation that contests their last will or trust. Most of the time, these clauses have the effect of treating the offending person as having predeceased the decedent. This means that said person would be bypassed for any inheritance they are otherwise entitled to. As a result, those shares or bequests will go to the next persons in line. Known as in terrorem (terror) clauses, those provisions intend to create a chilling effect on potential court action to increase the chances that the original estate plan will be carried out.
Michigan, however, has put limits on the enforceability of such clauses. Effective April 1st, 2000 for wills and effective April 1st, 2010 for trusts, a terror clause will not be enforced if there is probable cause for instituting a proceeding contesting that will or trust. “Probable 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.” In re Estate of Stan, 301 Mich App 435; 839 NW2d 498 (2013).
Probable cause has been interpreted in bizarre ways. The Michigan Court of Appeals upheld the Ingham Probate Court’s ruling that a beneficiary’s court petition did not violate the in terrorem clause in the respective trust. In re Miller Osborne Perry Trust, 299 Mich App 525; 831 NW2d 251 (2013). In that case, the trust grantor’s son believed that his aunt may have unduly influenced his mother into amending certain aspects of the trust before her death. In lieu of bringing a formal contest, the son filed a petition requesting the court to determine whether probable cause existed to pursue a contest in the first place. His sister, the successor trustee, denied any undue influence and invoked the terror clause in the trust against her brother that would have the effect of disinheriting him for bringing this legal action. The probate court, and subsequently the appellate court, held that the brother was not requesting that the judge rule on the validity of any term of the trust or ask for money, but rather he was requesting whether the court would, hypothetically, find probable cause in the event that an actual suit or contest was brought. Amazingly, he was able to feel out the court and determine ahead of time whether he had a case before taking a chance on real litigation that could disinherit him.
Does the terror clause work? Like most answers to legal questions, it depends. For trust grantors and will testators, it is important that their wishes are drafted in a clear, unambiguous and legally enforceable manner to reduce the chances of triggering litigation and having their intent frustrated. For potential contestants in probate and trust proceedings, it is equally important to determine probable cause exists before challenging the document to avoid disinheritance by a terror provision. In both cases, the advice of a knowledgeable probate and estate planning attorney can illuminate the way and help avoid the pitfalls that come with either choice.