No Contest Clauses and Challenges to Beneficiary Designations, Account Titlings, Gifts, or Powers of Attorney: Hunter v. Hunter’s Discussion of the Concept

This post is part 6 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 concept of a no contest clause “seeking to seal the courthouse doors to a litigant.” You can find parts 1-5 of the series at the following links: Part 1, Part 2, Part 3, Part 4, and Part 5.

In the Hunter opinion, the Virginia Supreme Court stated: “To begin, we have never addressed (much less approved) a no-contest provision seeking to seal the courthouse doors to a litigant seeking an interpretation (rather than an invalidation) of a trust or will provision.” The Court proceeded to cite an array of secondary sources that criticize such a practice. The Court stated in Hunter that it did not need to technically resolve that question to rule in the case. That said, the citations and tone appear to indicate that the Court would look highly skeptically on any effort by a litigant to try to use a no contest clause to wholly prohibit judicial interpretation of a will or trust provision.

This brings to mind an interesting question that I believe will likely be litigated in the coming years: can a no contest clause (that is contained in a will or trust) be applied to penalize a beneficiary of that will or trust if that beneficiary contests the validity of a document apart from the will or trust. In other words, if a no contest clause (contained in a will or trust) provides that a beneficiary will be disinherited if the beneficiary contests a “beneficiary designation” in an instrument, or an account titling on a financial account, or a gift made by the testator/settlor during life, or the validity of a power of attorney instrument – then would a court apply the no contest clause or refuse to apply it on the basis that it seeks “to seal the courthouse doors to a litigant”?

How would that seal the courthouse doors to a litigant? Because the no contest clause would not be contained within the instrument that is being contested. When a litigant contests the validity of a will or trust (that contains a no contest clause), if the litigant is successful, the will or trust will be declared as invalid. Therefore the no contest clause contained within that will or trust cannot be legally controlling (given that the whole will or trust was invalidated). Therefore, the no contest clause could not apply to the litigant’s actions, and the litigant would not be disinherited.

In this instance, however, a challenge to the validity of beneficiary designation instruments, an account titling document, a gift, or a power of attorney instrument, would not constitute a challenge to a will or trust. In fact, there are many scenarios in which a litigant would want to contest the former category of items, while not contesting the will or trust itself (whether that’s because the former category of items were made under different circumstances than a will or trust, for strategic reasons, etc.). That litigant is then presented with a dilemma: if he challenges the non-will and non-trust instruments, his conduct may (on the face of things) fall within the scope of conduct prohibited by a no contest clause. However, because he is not challenging the validity of the will or trust, he has no opportunity to have the no contest clause declared to be invalid, such that he could avoid its application. The end result is likely guaranteed disinheritance no matter what he does. That arguably constitutes “seeking to seal the courthouse doors to a litigant.” There are arguments that could be made that such a practice would constitute a violation of Virginia case law (as presented in Hunter), public policy, equitable principles of law, etc.

The next question is: are estate planning attorneys really drafting no contest clauses that provide for that? The answer is: absolutely. I see more of them every year. The practice is especially prominently utilized by estate planning document services that provide template documents to attorneys. As a side note, estate planning attorneys who use such template documents may want to consider advising clients in writing that portions of the no contest clause may be held to be unenforceable as a matter of law.

Returning back to Hunter: the big question is whether the passage in Hunter would be applied to prohibit the judicial application of such no contest clauses. It’s an interesting question and we’ll look forward to its answer in the years to come.

Conclusion

Stay tuned for part 7 in our 7-part series on the Hunter opinion, as we discuss how the Court touched on the area of law relating to the time between when a settlor becomes incapacitated and dies, and how that impacts a trustee’s duties.

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