Anti-Defamation Law Trumps Terms of Trust

There are laws that conflict with other laws. These conflicts are often due to competing policies. What may have been a good policy for one fact pattern, may not be a good policy given a slightly different fact pattern. The recent Marshall v. Marshall, Nos. 14-18-00094-CV, 14-18-00095-CV (Tex. App–Houston [14th]), case provides an example.

The Marshall case involves a lawsuit brought by a trust beneficiary asserting that the trustee, who was also a trust beneficiary, violated the no-contest clause in the trust. The beneficiary sought to have the trustee disinherited pursuant to the no-contest clause. Those who invoke no-contest clauses do so by filing or maintaining a lawsuit.

The case also involved a motion to dismiss by the trustee. The trustee cited Texas’ anti-defamation laws that prevent lawsuits that limit free speech, etc.

The appeals court was tasked with deciding whether a no-contest lawsuit should could be maintained or if Texas’ anti-defamation laws foreclosed on the lawsuit.

Can (or should) anti-defamation laws in essence void no-contest clauses that decedent’s include in their wills and trusts?

Facts & Procedural History

This probate dispute involved a trust created by a husband in his will. The trust provided for the surviving spouse and then, upon her death, the balance of the trust went to two trusts for the two kids.

The case suggests that the mother transferred the trust from Texas to Wyoming and modified some of the trust terms. The modification was allegedly effectuated by having one of the sons sue the mother/trustee and then the mother/trustee entering into a settlement agreement.

The other son who did not participate in the trust modification sued the mother/trustee based on the no-contest clause in the trust. According to the son, the mother/trustee’s actions to modify the trust triggered the no-contest clause and, as such, she was to be disinherited under the terms of the no-contest clause.

The In Terrorem or No-Contest Clause

An in terrorem or no-contest clause is language in a will and/or trust that serves to disinherit a beneficiary who challenges the will or trust.

The clause in the trust in this case provides an example:

If any beneficiary under this will or under any Trust created by this Will shall contest the probate or validity of this Will, or any provision thereof, or shall institute, provide financial support for, or join in (except as a party defendant) any proceeding to contest the validity of this Will or to prevent any provisions hereof from being carried out in accordance with its terms (regardless of whether or not such proceedings are instituted in good faith and with probable cause), then all gifts, fiduciary appointments, or other benefits (collectively, the Benefits) provided for such beneficiary hereunder are revoked, and all such Benefits shall pass to the persons who would receive Benefits under the provisions of this Will as if such contesting party predeceased me.

The purpose of these clauses is to dissuade expensive probate litigation. Many wills and trust include this type of language.

The Texas courts have been reluctant to enforce no-contest clauses. This reluctance is based on the idea that those with a legitimate complaint should be able to ask the court for help without fear of losing their interest in the estate or trust. Section 254.005 of the Texas Estates Code echos this sentiment. It says that a no-contest clause will not be enforced if the contest is brought and maintained in good faith and with just cause. It is not exactly clear what “good faith” or “just cause” means.

As the Marshall case shows, we may never get a definition of these phrases. There are other ways to avoid a no-contest clause. This brings us to the Texas Citizens Participation Act and back to this case.

The Texas Citizens Participation Act

The Texas Citizens Participation Act (“TCPA”) provides a means for disposing of lawsuits that restrain the ability to petition, speak freely, and associate freely. The idea is that one should be free to communicate without fear of a lawsuit.

Many states have laws similar to the TCPA in Texas.

The TCPA usually comes up in defamation cases. It provides a defense to the defamation lawsuit. The defendant invokes the TCPA by filing a motion to dismiss pursuant to the TCPA. If successful, the defendant not only gets the case dismissed, they may also be awarded attorneys fees.

The question for the appellate court was whether a motion to dismiss filed by the defendant under the TCPA should be granted. The probate court did not dismiss the case by applying the TCPA. The appellate court did. It concluded that the TCPA applied.

Recall that in this case, the son sought to enforce the no-contest clause against his mother. The mother had filed a lawsuit and sought to modify the trust. The mother responded by filing the TCPA dismissal. Thus, on appeal, the mother argued that the attempt to enforce the no-contest clause violated the TCPA as it implicated her right to petition the courts.

The Takeaway

Given the Marshall case, one is left wondering whether Section 254.005 of the Texas Estates Code has any meaning and when a no-contest clause might actually be enforced. The award of attorneys fees for a TCPA motion to dismiss should give many pause before considering a contest based on a no-contest clause.

It is often thought that a decedent can up the ante for no-contest clauses by providing the would-be contestant something to lose. This means that the decedent should include in their estate planning some gift or transfer to the person who is likely to challenge the will or trust. It is often thought that this is better than omitting the person and completely disinheriting the person.

The Marshall case brings this advice into question. If the no-contest lawsuit can be dismissed by invoking the TCPA, the decedent might as well leave the would-be contestant nothing and let them file the contest.