This post is part 4 in our 7-part series on the Virginia Supreme Court’s ruling in Hunter v. Hunter (Record No. 190260). Today we focus on the opinion’s discussion of the “gift over” rule and how that rule relates to a no contest clause. You can find parts 1-3 of the series at the following links: Part 1, Part 2, and Part 3.
The “gift over” rule relates to what type of language a no contest clause must contain in order to be legally effective. English and early American courts required that in order for a no contest clause to be effective, it must be accompanied by language providing that if a litigant is disinherited under a no contest clause, that litigant’s share must be distributed to some other person or persons. Hence the name “gift over.”
In footnote 6 of the Hunter opinion, the Virginia Supreme Court stated that “[i]t is significant that the [trust at issue] provided that [the plaintiff’s] interest, in the event of forfeiture, would be distributed in equal shares to [other beneficiaries].” The Virginia Supreme Court then cited a law journal article discussing how English and early American courts “required the testator to provide a gift over to another to disaffirm any inference that the forfeiture provision was merely in terrorem and that the testator had merely ‘intended only to frighten the beneficiary to comply’”. With respect to the reference to “merely in terrorem”: this means that the provision was only designed to try to strike fear into the beneficiary to not litigate the issue, rather than operate to legally disinherit the beneficiary in the event of an unsuccessful contest.
The opinion proceeded to discuss the Virginia Supreme Court’s ruling in Womble v. Gunter, 198 Va. 52 (1956), which discussed how the gift-over rule had been “‘disregarded’ in several jurisdictions and had been mentioned ‘by way of dictum’ in one of our earlier cases.” The Court then stated:
The best synthesis of the gift-over rule, however, came from Justice Story. He explained that, the presence or absence of a gift over “might have a bearing” on the question of a drafter’s intention but that it “should not be decisive.” Chancellor Kent agreed with this view as do we.
(Internal citations omitted).
So what does this mean for the Virginia trust and estate bar? Importantly, this is the first occasion in which the Virginia Supreme Court squarely ruled on the issue of the gift-over rule in Virginia. It’s always a good thing for the legal community and litigants when the Supreme Court brings certainty to the state of the law on open questions. I know I’ve stated this before in my earlier blog posts on the Hunter case, but it bears repeating: the Virginia Supreme Court did the trust and estate bar a significant service in the Hunter opinion due to the scope of issues that it clarified, as well as the fact that it addressed (without ruling on) an array of relatively newer issues that arise in trust disputes (I’ll discuss those in greater detail in future blog posts).
Additionally, estate planners don’t need to worry about having to redraft wills and trusts if their no contest clauses do not contain adequate gift-over language. It’s been my experience having litigated wills and trusts drafted by dozens of law firms throughout Virginia, that the great majority of law firms include the gift-over language in their standard no contest clauses.
Finally, if an estate planning attorney does not regularly include the gift-over language in a no contest clause, it would be prudent to do so. The Supreme Court in Hunter made it clear that the absence of the gift-over language is not fatal to the enforceability of a no contest clause. That said, it seems that in a situation involving an ambiguously-drafted no contest clause, the presence or absence of gift-over language could prove to be decisive as to whether such a clause is enforceable or not.
Stay tuned for parts 5, 6, and 7 in our 7-part series on the Hunter opinion, as we discuss how the Court touched on further areas of the law that will likely be developed in the years and decades to come.