Introduction. An in terrorem (no-contest) clause in an inter-vivos trust instrument provides for forfeiture of the attendant equitable property rights of any beneficiary who “contests the trust.” A contest might take the form of a challenge in the courts to the validity of trust itself, to validity of a material trust term, or to how trust is being administered. In each category of contest, however, enforceability of an in terrorem clause, even a clause expressly authorized by statute/case law, is subject to an equity veto, circumstances warranting.

Contesting the trust’s validity. Even when there is an in terrorem clause a beneficiary has standing to contest judicially the trust’s validity, provided the allegation is that the trust itself has been the product of incapacity, fraud, duress, undue influence, mistake, or breach of fiduciary duty such that someone has been unjustly enriched as a consequence. If the beneficiary prevails, the trust itself is voided; also, perforce, are its terms, of which the in terrorem clause is one. See, e.g., Slosberg v. Giller, 876 S.E.2d 228 (Ga. 2022). If contest is unsuccessful, then the in terrorem clause stands, with the beneficiary not only being denied unjust-enrichment-based restitution but also losing his/her equitable property rights under the trust. Id. In terrorem clauses, together with any statutory authority relating thereto, should not be parsed in isolation. Equitable context is critical. Why might a beneficiary seek the trust’s total voidance? Perhaps he/she would be entitled to entire trust estate free of trust should voidance trigger a resulting trust. Or contesting a trust “as amended” might be advantageous economically, the beneficiary being entitled to a greater economic interest under its unamended version.

Contesting a trust term. Assume current beneficiary of an inter vivos trust is deceased settlor’s girlfriend (GF). The taker of the remainder-in-corpus is to be settlor’s son (S). There is an in terrorem clause. Provisions for benefit of GF are alleged to be the product of the GF’s fraud, duress, or undue influence. If culpability is found, equity ought not permit the in terrorem clause to be triggered in GF’s favor, her hands being unclean. Now if the malfeasance had been perpetrated by someone other than GF, she, though innocent, still has been unjustly enriched. S, assuming he is one victimized by the unjust enrichment, may bring an equitable action for restitution without triggering the in terrorem clause. It is the unjust enrichment that is being contested, not the trust’s terms. Equity cannot allow the in-terrorem clause to tie equity’s hands when it comes to unjust-enrichment remediation. Had the scrivener been the GF, then the in terrorem clause also could be a product of a breach of fiduciary duty incident to the attorney-client agency relationship, the settlor-client being the principal, GF-lawyer the agent. Thus, even absent fraud, duress, or undue influence, if settlor had not given his informed consent to insertion of an in terrorem clause that would advantage GF, then equity should void the clause. Equity’s wariness when it comes to exculpatory clauses advantageous to scrivener-trustees should apply as well to in terrorem clauses advantageous to scrivener-beneficiaries. The exculpatory clause is taken up in §7.2.6 of Loring and Rounds: A Trustee’s Handbook (2023), which section is reproduced in appendix below. Again, equitable context is critical. The Handbook is available for purchase at: https://law-store.wolterskluwer.com/s/product/loring-roundstrustees-hanbook-2023e/01t4R00000Ojr97QAB.

Contesting how trust is being administered. Equity should not enforce an in terrorem clause when it comes to actions to remedy intentional breaches of trust, particularly breaches of trustee’s duty of undivided loyalty. Otherwise trustee would personally hold subject property free of fiduciary constraints. A truly unaccountable “trustee” is indistinguishable from the donee of a completed gift. Equity should not enforce an in terrorem clause if to do so would effectively void the very trust the clause was intended to protect. Vexatious breach-of-trust actions brought by a beneficiary in bad faith and without reasonable cause, however, should trigger the in terrorem clause, particularly if the purpose of the litigation is to constructively void the trust. See, e.g., Barry v. Barry, 851 S.E.2d 119 (Ga. 2020). So also vexatious declaratory-judgment actions. “Equity looks to the intent (substance) rather than to the form.” While actions for negligent breaches of trust may be deterred via an in terrorem clause, they also may be deterred via the exculpatory clause. Less confrontational. In any case, in terrorem clauses are too doctrinally unstable to warrant boilerplate status. The in terrorem clause is covered exhaustively in §5.5. of the Handbook.