Codifying the Good Faith & Probable Cause Exception
by Christine Nowak, Philip Lindquist and Mark Sales
Forfeiture clauses, also called “no contest” or “in terrorem” clauses, are, simply put, provisions that condition a beneficiary’s receipt of a gift on their acceptance of the remainder of a will or trust agreement. The intended purpose of such clauses is to dissuade a beneficiary from contesting the will or trust. Texas courts have long recognized such clauses as valid and enforceable.
While Texas courts historically have recognized the legality of forfeiture clauses, the courts have avoided or limited their effect through strict construction and the application of certain common-law “exceptions.” The Texas Legislature recently “clarified” Texas law by codifying one such exception—the good faith and probable cause exception—by amending the Texas Probate and Trust Codes, effective June 19, 2009.
New Section 64 of the Texas Probate Code governs the enforceability of a provision in a will that would cause a forfeiture of a devise or void a devise or provision in favor of a person for bringing any court action, including contesting a will. New Section 112.038 of the Texas Trust Code governs the enforceability of a provision in a trust that would cause a forfeiture of or void an interest for bringing any court action, including contesting a trust.
Under both sections, such provisions are unenforceable if: (1) probable cause exists for bringing the action; and (2) the action was brought and maintained in good faith. Notably, Section 112.038 cannot be waived, making it another exception to the rule that the terms of a trust generally prevail over any provision of the Texas Trust Code. See Texas Trust Code §111.0035(b)(6).
Before these provisions were enacted, it was an open question whether Texas recognized a good faith and probable cause exception to enforcing no contest clauses. The exception was applied variably by state appellate courts, and the Texas Supreme Court had never directly adopted the “exception.”
That court had, instead, merely referenced it favorably in dicta: “The great weight of authority sustains the rule that forfeiture of rights under the terms of a will, will not be enforced [when] the contest of the will was made in good faith and on probable cause.” Calvery v. Calvery, 55 S.W.2d 527, 530 (Tex. 1932, opinion adopted). The 2009 legislation, therefore, makes express what Texas’ highest court had ostensibly (but without certitude) implied—that forfeiture clauses are subject to a good faith and probable cause exception.
While it is now clear that Texas recognizes the exception, neither the newly-minted statutes, nor any Texas courts, have defined what constitutes probable cause or good faith. In resolving the probable cause question, Texas courts may choose to look to the Restatement (Second) of Property: Donative Transfers §9.1 cmt.j (1981) which says “probable cause” means“the existence, atthe time of the initiation of the proceeding, of evidence which would lead a reasonable person properly informed and advised, to conclude that there is a substantial likelihood that the contest or attack will be successful.” The standard for good faith similarly remains undefined, although the good faith pleading requirement under Texas Rule of Civil Procedure 13 (and related case law construing it) may well provide some guidance regarding what it means to bring and maintain an action in good faith.
The statutes also do not specify who has the burden to plead and prove the exception. Relying on prior Texas jurisprudence, the burden of showing good faith and probable cause likely falls on the will or trust contestant. To employ or invoke the exception, which has been characterized as an affirmative defense, it is probably necessary for a contestant (1) to expressly raise the exception in its pleadings, and (2) to secure a finding (by the court or the jury) that the contest was in fact brought in good faith and with probable cause. See Hammer v. Powers, 819 S.W.2d 669, 673 (Tex. App. – Fort Worth 1991, no writ).
In conclusion, the legislative enactment of the good faith and probable cause exception, while “clarifying” that Texas recognizes the exception, leaves many other questions unanswered. Nevertheless the new statutes remain a potent reminder that forfeiture clauses should not be taken at face value by estate planners in advising their planning clients or by fiduciary litigators bringing and defending will or trust contests.
Mr. Sales is a member with Dykema Gossett, PLLC and Ms. Nowak is an associate with the firm. Mr. Lindquist is a partner with K&L Gates, LLP. They can be reached at firstname.lastname@example.org,email@example.com firstname.lastname@example.org, respectively.