Plan To Be 100

The Court of Appeals has published another case on terror clauses.  Estate of Eugene Stan.

The facts are that A filed for formal admission of a Will which included A’s appointment as Personal Representative (PR), pursuant to the nomination in the Will.  B opposed the appointment of A, citing bad acts of A in handling affairs of the estate prior to appointment.  The Will was a pourover will (poured over to a trust).  The Will contained no terror clause, but the Trust contained a terror clause that purported to encompass challenges to the Will.  The terror clause language was standard.

The issue was whether the terror clause in the trust was violated by contesting the appointment of A as PR in a proceeding to admit the Will.

The trial court said “no.”  The Court of Appeals said: “Yes, but that the terror clause penalty was unenforceable because B had probable cause to request that A be passed over for appointment based on her bad acts.”

The case is troubling to me for a number of reasons, but mostly because it seems to equate a petition to remove a PR for cause with an attack on a trust sufficient to trigger a terror clause penalty.  That is not true.  A terror clause, such as the one in question here, penalizes an effort to contest the validity of the Trust or Will at issue.  There was no claim in this case that the Will was not valid, that is no claim that the provision of the Will pursuant to which A was appointed PR was invalid as a result of incapacity, undue influence, etc.  The only claim was that A was not suitable to serve, based on her conduct as PR prior to her appointment. 

The case says that the attorney for B conceded that the Petition to preclude A’s appointment was a contest of a provision of the Will.  That was wrong for the attorney to have made that assertion, and wrong for the Court of Appeals to have relied on it as controlling (if that is what it did).  Clearly that is not true. 

This ruling creates confusion about the scope of activities that would potentially create a challenge to a document sufficient to trigger a terror clause penalty.  I suppose this terror clause could have said that any petition to remove a PR would be grounds for invocation of a penalty, but that is not the case.  So we are left with the proposition that an action to remove a PR (or trustee for that matter) who is expressly nominated in the document will be treated as a challenge to a provision of the Will or Trust at issue sufficient to trigger a terror clause.  It leaves us with the question of whether the result would have been different if B had not challenged the appointment of A at the hearing on admission of the Will but had instead waited a week and filed a separate subsequent petition for removal of A as PR for cause. This type of decision only further muddies the waters in what is becoming a troubling mire of opinions (in light of the Perry Trust matter discussed extensively in this blog).