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Can Lawyers Immunize Clients against Estate Litigation?

Careful estate planning can sometimes prevent a will challenge – but nothing is fool proof.  The purpose of this short review is to look at one arrow in the estate planner’s quiver and see how effective “forfeiture clauses” are to inoculate clients from fights over their estates. 1

For centuries clever solicitors have been trying to draft “no contest” provisions into wills and codicils. One of the earliest reported cases was Morris v. Borroughs2, in which the will contained a provision that any legatee challenging the will would forfeit his legacy. Will the courts enforce these types of provisions? The answer depends, in part, on how well the provisions are drafted.

The concern for the estate planner is that the forfeiture clause should not contravene public policy either by trying to deprive the court of jurisdiction or by depriving a dependant of their rights to support from the deceased’s estate.3

Historically, in English jurisprudence, “A condition not to dispute a will is not void for uncertainty, nor as being contrary to good morals or public policy, nor prohibited by any positive law, but, on the other hand, it is not broken if the proceedings taken by the legatee are necessary for the protection of his rights.”4  The English courts have tried to balance giving effect to the testator’s wishes to make gifts contingent on there being no challenge to an entitlement while at the same time ensuring that parties could look to the courts to enforce rights conferred.

In Kent v. McKay5, the testator was concerned that his children would squander their inheritance so he settled several trusts to provide them with income only. The remainder of the capital in the trusts was to be distributed to the testator’s grandchildren in equal shares upon the deaths of their parents. To shield the estate against litigation, the testator added the following provision to his will:

“I HEREBY WILL AND DECLARE that if any person who may be entitled to any benefit under this my Will shall institute or cause to be commenced any litigation in connection with any of the provisions of this my Will other than for any necessary judicial interpretation thereof or for the direction of the Court in the course of administration all benefits to which such person would have been entitled shall thereupon cease and I HEREBY REVOKE all said benefits and I DIRECT that said benefits so revoked shall fall into and form part of the residue of my Estate …”

The court in Kent analyzed the forfeiture clause from three different angles.

First, it looked to see whether the clause would be void for purporting to oust the jurisdiction of the courts. In this particular instance, the clause was drafted to specifically permit “any necessary judicial interpretation thereof or for the direction of the Court in the course of administration.” The court held that the clause was therefore not invalid on this ground.

Second, the court considered whether the clause was in terrorem – an “idle” threat meant to terrify beneficiaries into compliance. In terrorem clauses are invalid in the eyes of the law, but, through centuries of jurisprudence, a rule has been established that where there is an express gift-over provision tied to the forfeiture clause it is not in terrorem. In Kent, the court followed that rule and held that the forfeiture clause was not in terrorem because there was a gift-over provision. The words “said benefits so revoked shall fall into and form part of the residue of my Estate” were sufficient to constitute a gift-over and thereby avoid the in terrorem doctrine. The forfeiture clause was not invalid on this
ground.

Third, the court considered whether the clause was depriving the beneficiaries of their statutory rights. The court reasoned that the intent of the legislature in creating the Wills Variation Act, R.S.B.C. 1996, c. 490, was to ensure the adequate maintenance and support of specified individuals. By attempting to prevent the beneficiaries from exercising their rights under this statute, the clause was invalid as against public policy.  In the result, the court in Kent found the forfeiture clause invalid.

In Bellinger v. Nuytten Estate,6 one of the claimants (Roy) told the testatrix that he planned to challenge her will. Accordingly, the testatrix added the following provision:

“IT IS MY FURTHER DESIRE, because of an expressed intention of one of the legatees to contest the terms of this my Will, that should any person do so then he or she shall forfeit any legacy he or she may be otherwise entitled to.”

As expected, Roy commenced a claim under the Wills Variation Act, saying that the estate did not adequately provide for him. Less predictable, though, was the fact that another legatee (Phil) challenged the will on the basis of undue influence and breach of an agreement allegedly entered into between the legatees and the deceased.

The court in Bellinger did not consider whether the forfeiture clause was ousting the jurisdiction of the court. This is perhaps because the court found the clause invalid on two other grounds.

First, the forfeiture clause was invalid as an in terrorem threat because it lacked an express gift-over provision. The court expressed the old rule emphatically:

“The gift must be accompanied by an effective gift-over which vests in the recipient on the condition being breached. If there is no gift-over, then the condition will be treated as merely in terrorem that is a mere threat, and will be found to be void. And nothing short of a positive direction of a gift-over, of vesting in another, even in the case where the forfeited legacy falls in the residue, will suffice. There must be an express disposition of what is to be forfeited.”

Second, like in Kent, the court in Bellinger found that the forfeiture clause was invalid insofar as it prevented Roy from seeking a remedy under the Wills Variation Act. Interestingly, however, the court did not consider the clause invalid as against public policy insofar as it would have blocked Phil from challenging the will on the bases of undue influence and breach of an agreement.  The court wrote:

“And the lack of the slightest suggestion of any gift-over supports my conclusion. [The forfeiture clause] then being in terrorem is clearly void at common law as against both men. It is also void with regard to Roy’s application under the Wills Variation Act, as being contrary to public policy.”

In other words a forfeiture clause that precludes a will challenge based on undue influence is not contrary to public policy per se, however, a forfeiture clause that precludes a dependants support claim is contrary to public policy and therefore void.

In Ontario, depending on how the “no contest clause is drafted” it can be valid and enforceable.7  This issue was canvassed in Harrison v. Harrison.8  In this case the beneficiary sought the court’s interpretation of a clause in the will.  The court concluded that this did not contravene the forfeiture clause because the beneficiary was not challenging or seeking to modify the will, he was only seeking the correct meaning of the will.

So what general rules or conclusions can be drawn from our brief review?

  1. Do not oust jurisdiction of the court.  A forfeiture clause should be drafted in such a way that it expressly does not oust the jurisdiction of the court. In Kent, permitting “any necessary judicial interpretation thereof or for the direction of the Court in the course of administration” was beneficial.
  2. Gift over needed.  A forfeiture clause, to avoid being found to be in terrorem, must contain a positive direction of a gift-over, or vesting in another, meaning an express disposition of what is to be forfeited.
  3. Do not bar Part V.  A forfeiture clause should not be drafted to bar actions under certain remedial statutes, such as the Wills Variation Act in British Columbia. (Based on the reasoning in Kent, it seems likely that a court would be loath to permit a forfeiture clause to block a dependant’s relief claim under Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26.) In other words, the clause should be drafted with a specific carve-out for dependant’s support claims. It is implicit in Bellinger that a narrower forfeiture clause dealing only with a challenge on the basis of undue influence or breach of an agreement would have been valid.
  4. Opinion, advice and declaratory relief.  When a litigant goes to court over a will containing a forfeiture clause the litigant is well advised to frame the proceedings as seeking directions as opposed to challenging entitlements.

 

Footnotes
  1.  A more comprehensive treatment of the topic may be found in P. Lawson, “The rule against ‘in terrorem’ conditions: What is it? Where did it come from? Do we really need it?” 24 E.T.P.J. 71. and a memorandum in Schnurr, Estate Litigation, 2nd Ed. By Victoria Solomons dated 2012-08-31 addressing the legal issues “when instructed to do so by a clause contained in a will, is an estate trustee able to deplete the estate in defending the will against the dependant support claim brought by the disinherited children of the testator.
     
  2.  (1737) 26 E.R. 253.  This case stands for the proposition that the forfeiture clause is void when there exists substantial grounds from commencing litigation.
     
  3.  See paragraph 2 of Schnurr, Estate Litigation, 2nd Ed., Issues in Focus, Memorandum.
     
  4.  This quote was taken from Elena Hoffstein and Robi Roddey’s article, “No contest Clauses in Wills and Trustees” presented at the Six Minute Estates Lawyer Seminar 2008.  The article is a worthwhile read to anyone investigating forfeiture clauses.
     
  5.  (1982) 139 D.L.R. (3d) 318 (B.C.S.C.).
     
  6.  (2003), 50 E.T.R. (2d) 1 (B.C.S.C.)
     
  7.  See Harrison v Harrison (1904), 7 O.L.R. 297.
     
  8.  (1904) 7. O.L.R. 297.
     

Charles Wagner and Brendan Donovan

The authors of this blog are Charles Wagner and Brendan Donovan. Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP and Brendan was a partner.

This Toronto office is a boutique litigation law firm whose practice is focused on estate and commercial litigation.

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This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
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