A Strong Offense
A Stronger Defense
No-contest clauses can give trustees a great amount of power. Obviously, it is a power that the grantor wants the trustee to wield – in appropriate circumstances – because the grantor thought it important enough to include in his or her trust instrument. But, a trustee must still determine whether a beneficiary’s conduct rises to a level sufficient to trigger the clause and to seek its enforcement. And, if a trustee seeks to enforce a no-contest clause, it is probably well-advised to enforce it evenhandedly. In In the Matter of Joseph L. Dugan Revocable Living Trust dated January 13, 2003 (unpublished disposition), the Nevada Supreme Court took a look at an attempt to enforce a clause against two of three trust beneficiaries.
Joseph Dugan’s trust contained a no-contest clause which allowed the trustees to disinherit any beneficiary who contested the trust or otherwise interfered with the trust’s administration or distribution. Three of the trust’s beneficiaries, Kelly, Sean, and Casey, jointly filed two petitions for an accounting, compelling compliance with the trust’s terms, removal of trustees, and appointment of two trustees. The trustees then filed notices of disinheritance, but only with respect to Sean and Casey – not Kelly.
The trustees claimed that Sean and Casey were disinherited because they contested the trust and attempted to thwart the trustees. But, if Sean and Casey contested the trust, didn’t Kelly contest the trust, too? According to the trustees, Kelly didn’t participate in the specific actions that gave rise to Sean’s and Casey’s disinheritance. Apparently, then, it wasn’t the filing of the petitions that triggered the disinheritance notices, but Casey’s “failure to promptly provide information regarding some of the trust’s assets” and Sean’s “derogatory remarks towards the Trustees [which] interfered with the trust’s administration.”
A probate commissioner issued a report recommending that the notices of disinheritance be denied, to which the district court and Nevada Supreme Court agreed. Sean’s and Casey’s conduct simply did not violate the no-contest clause. The trustees’ decision to let Kelly keep his share, despite his involvement with the petitions, demonstrated that the petitions did not play a role in the trustees’ decision to disinherit Sean and Casey. While the trustees may not have liked Sean’s and Casey’s conduct, it did not interfere with the trust’s administration.