Article on In Terrorem Clauses in Texas
Everyone is familiar with the oft-cited “carrot-and-stick” idiom, which may conjure up the image of a donkey or other beast of burden being enticed along by the potential reward of a carrot dangling in front of the animal’s face. The other half of the expression-the stick-serves as a threatened punishment, which will be used if the carrot is not sufficient inducement to persuade the animal to move. The phrase “carrot-and-stick” is, in fact, defined as “characterized by the use of both reward and punishment to induce cooperation.” Inducing behavior is exactly what testators and trust settlors hope to accomplish by including in terrorem clauses in their wills and trusts. The purpose of such clauses is to effectuate the intent of the testator or settlor to avoid will or trust contests by offering potential contestants a “carrot” in the form of a gift or bequest under the terms of the instrument, but threatening a “stick” in the form of forfeiture of such gift or bequest if they contest the instrument.
Under a standard in terrorem clause, a beneficiary has two options: (1) accept the gift under the testamentary instrument, or (2) contest the instrument and, if successful, alter the testator’s dispositive scheme (making the in terrorem clause and the entire will invalid and causing the estate to be divided in accordance with a prior valid will or the state’s intestacy laws) and receive a larger gift. The catch? If the contest fails, the beneficiary would forfeit all benefits under the instrument.
The Latin meaning of the term in terrorem is “in order to frighten,” and these clauses were historically used to strike terror in the hearts of anyone who might wish to contest a testamentary instrument. Black’s Law Dictionary defines an in terrorem clause (or “no-contest clause”) as “a provision designed to threaten one into action or inaction; esp[ecially], a testamentary provision that threatens to dispossess any beneficiary who challenges the terms of the will.” In fact, in keeping with the threatening idea, most instruments provide that the person who contests the will directs the court to consider them as having predeceased the testator without descendants.
In Texas, our jurisprudence has recognized the validity of in terrorem clauses in wills and trusts, but the enforceability of such clauses has been nothing short of guesswork. Texas case law has generally recognized the validity of in terrorem clauses, but it construes such clauses strictly. Texas case law favorably discusses (and even suggests) that Texas should apply the exception to the enforceability of in terrorem clauses recognized in many jurisdictions with respect to contests brought in good faith and with probable cause; however, no Texas court has ruled directly on whether such exception is applicable in Texas. The Texas Legislature recently attempted to eliminate much of this speculation with the enactment of Texas House Bill 1969, which added § 64 to the Texas Probate Code and § 112.038 to the Texas Trust Code; the new statutes provide that forfeiture provisions in wills and trusts that are triggered by court actions are not enforceable if probable cause exists for bringing the action and if the action is brought and maintained in good faith.
This Article traces the history and development of in terrorem clauses, explores the development and effectiveness of such provisions in Texas, and analyzes potential improvements to and drafting approaches in light of Texas Probate Code § 64 and Trust Code § 112.038. Part II discusses the historical background of in terrorem clauses, including certain public policy arguments that support and oppose the enforcement of such clauses. Part III focuses on the evolvement of in terrorem provisions in Texas, including recognized exceptions and the recent enactment of Texas Probate Code § 64 and Trust Code § 112.038. Part IV compares current Texas jurisprudence regarding in terrorem clauses to jurisprudence in certain other states. Finally, Part V considers recommendations for improving the Texas statutes regarding in terrorem clauses and suggests approaches for drafting such provisions given the current Texas jurisprudence.