Many states, including Arizona, recognize in terrorem clauses in wills and trusts. An in terrorem clause will typically state that if anyone challenges a document, his or her bequest under the document is forfeited. Of course, if someone wishes to challenge a will and is otherwise disinherited, the contestant would have nothing to lose. Only someone with a significant stake in the document to be challenged would be effected by an in terrorem clause. Even though such clauses are recognized in many states, state law will typically not apply the clause if the contestant prevails in the challenge to the document, or has good cause for making the challenge.
The 2012 Arizona case of Stewart v. Stewart (In re Estate of Thomas), 230 Ariz. 480, 286 P.3d 1089 (Ct. App. 2012) presents an unusual fact pattern where the contestant to the will was omitted from the will, but nevertheless challenged the in terrorem clause.
Does Arizona Recognize In Terrorem Clauses?
Yes, Arizona recognizes in terrorem clauses pursuant to statute. Arizona Statute Section 14-2512 provides:
A provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for that action.
In the Stewart case, Sean, a child of the Decedent, challenged a will and trust from which he was omitted. He also challenged the in terrorem clause – not because he would be directly harmed by the clause, but because the clause had the effect of deterring others from assisting in his will contest. The clause had standard language disinheriting anyone who challenged the will, but the clause also contained an aiding and abetting clause, which purported to disinherit anyone who:
Cooperates or aids in any action described in the preceding provisions of this paragraph with any other person, regardless of whether that other person is himself or herself subject to this article.
The Arizona Court explained why Sean challenged the in terrorem clause:
Sean next filed a motion to invalidate the in terrorem clauses, arguing they impeded his discovery efforts by prohibiting beneficiaries from “cooperating or aiding” him in contesting the Will and Trust. After briefing and oral argument, the court granted the motion and ruled “the clause is unenforceable.” The court later clarified that its ruling applied to the Will, Trust, and any other testamentary document.
Sean and some of the beneficiaries ultimately settled the will contest, in the form of a judgment. The trial court, however, insisted on including in the judgment the holding that the in terrorem clause was invalid, even though the parties had settled the case. The defendants in the will contest then appealed that portion of the judgment striking the in terrorem clause. (The opinion does not explain why the validity of the in terrorem clause was an issue for them – perhaps there were other contestants waiting in the wings.)
On appeal, the Court addressed issues of standing, ripeness, and validity.
A Will Contestant Has Standing to Challenge an In Terrorem Clause Even If Not Directly Effected
The Court held that Sean did have standing to challenge the in terrorem clause under Arizona law, as follows:
Appellants contend that because Sean was not a beneficiary under the Will or Trust, the clauses could not affect him, and he therefore had no interest in invalidating them. We disagree. Sean alleged the Will and Trust were products of “Thomas’s failed mental health and the undue influence . . . Slade exerted over their father.” Any formal or informal discovery into the state of Thomas’s mental health and Slade’s influence over his father prior to execution of the Will and Trust in 2007 would likely involve inquiries made to other family members, some of whom are Trust beneficiaries. Because the in terrorem clauses may compel these beneficiaries to refrain from cooperating with Sean, thereby impairing Sean’s ability to prosecute his action, Sean adequately alleged injury from enforcement of the clauses. Sean therefore had standing to contest the clauses, and the superior court correctly considered his motion.
Can an In Terrorem Clause Be Challenged Prior to Resolution of the Will Contest?
Yes. The Court held that the resolution of the validity of the in terrorem clause was ripe prior to adjudication of the will contest. Ripeness is the concept that “prevents a court from rendering a
premature judgment or opinion on a situation that may never occur.” Winkle v. City of Tucson, 190 Ariz. 413, 415, 949 P.2d 502, 504 (1997). In holding that the validity of the in terrorem clause was ripe prior to final adjudication of the will contest, the Court reasoned:
Appellants contend the court violated [the ripeness] doctrine by entering a ruling in anticipation that a beneficiary may be precluded from inheriting due to enforcement of the clauses – a situation that may never occur. See Santa Fe Ridge Homeowners’ Ass’n v. Bartschi, 219 Ariz. 391, 397-98, ¶ 22, 199 P.3d 646, 652-53 (App. 2008) (noting impropriety of granting anticipatory judgment resolving events that had not yet occurred). We disagree. At the time Sean moved to invalidate the in terrorem clauses, he had contested the Will and Trust in a lawsuit and was entitled to conduct discovery to prove his case. The clauses served to deter beneficiaries from cooperating with Sean’s discovery efforts. It was not necessary for Appellants to enforce the clauses to make their validity ripe for adjudication; the threat of enforcement as Sean embarked on discovery was sufficient to create an actual controversy.
Do In Terrorem Clauses Violate Arizona Public Policy?
No. The trial court invalidated the in terrorem clause on public policy grounds and as a violation of Arizona Statute Section 14-2512. The appellate Court explained the issue at hand:
The superior court ruled § 14-2517 conflicts with the in terrorem clauses in the Will and Trust because the clauses are effective “regardless of whether any such contest is made in
good faith or is ultimately successful.” The court concluded the clauses are facially invalid because the court would have to rewrite the clauses in order to enforce them. Appellants argue the court erred because § 14-2517 neither prohibits in terrorem clauses nor requires them to include specific language to be enforceable. Rather, § 14-2517 serves only to prevent enforcement of an in terrorem clause when probable cause existed for contesting the validity of a testamentary document.
In upholding the validity of the in terrorem clause, the Court focused on the specific inquiry to be made – that of probable cause when the will contest is initiated, as opposed to ultimate success or good or bad faith.
Applying Shumway, we agree with Appellants the superior court erred by invalidating the in terrorem clause in all circumstances rather than only when a beneficiary lacks probable cause to challenge the Will or “institute[es] other proceedings relating to the estate.” Section 14-2517 does not require that an in terrorem clause contain specific language to be enforceable. And the clause’s pronouncement that forfeiture will occur regardless of the beneficiary’s good faith or ultimate success does not direct a different outcome than in Shumway, as the superior court concluded. Indeed, the clause is effectively no different than the one at issue in Shumway, which required forfeiture without apparent regard to a challenging beneficiary’s good faith or ultimate success. The key consideration under § 14-2517 is whether the beneficiary had probable cause to contest the will or institute other estate-related proceedings. The probable cause determination turns on whether a reasonable person at the time of the challenge would have believed a “substantial likelihood [existed] that the contest or attack will be successful.” Whether the beneficiary acted in good faith or ultimately prevailed is not part of the probable-cause inquiry. Therefore, we reject the superior court’s conclusion that the clause necessarily conflicts with § 14-2517.