Every family has that special family member who causes all the problems—the bad seed—the redheaded step child—the sponge—etc. When mom and dad die, this bad seed wants to argue about everything, including why he/she receives a smaller portion of the estate than others. The bad seed just cannot understand why mom or dad would give less to him/her than the other children.
To defend against the bad seed and to protect the other people receiving bequests from the estate, attorneys place poisonous pills in the will or trust to disinherit the bad seed if he/she files a lawsuit to protest the estate plan or the administration of the estate. These clauses are called “in terrorem” clauses. These clauses are designed to “frighten” or cause “terror” in the bad seed so as to dissuade the bad seed from filing the lawsuit. The reason this is so important is that lawsuits frequently deplete the estate for every other beneficiary of the estate.
In Stewart v. Stewart, et al., a case decided on September 27, 2012, the Arizona Court of Appeals reversed a trial court that ruled against a particularly harsh in terrorem clause. The clause was so harsh that a beneficiary who “cooperates or aids” another in contesting the will or trust was disinherited. The trial court ruled that such a broad clause violated the public policy of Arizona because Arizona Revised Statute 14-2517, along with case law interpreting it, allows for good faith attacks on wills or trusts, even if unsuccessful.
In reversing the decision, the Court of Appeals reasoned that the clause only applied to beneficiaries who “voluntarily cooperate or aid a party to contest” the will or trust. The Court of Appeals further reasoned that a party that brings the lawsuit with probable cause and in good faith has no reason to fear the in terrorem clause as current Arizona law supports those attacks. The Court explained that if a reasonable person at the time of the challenge would have believed there was a substantial likelihood of success for a contest or attack, then the in terrorem clause will have no force.
In making this decision, the Court of Appeals provided significant support to in terrorem clauses and, therefore, increased ammunition against bad seeds. So, do you have a bad seed in your family? If so, a properly drafted in terrorem clause will aid in limiting the damage from a lawsuit after you die.