Monday, October 26, 2009

The Supreme Court of Virginia's Decision in Keener v. Keener

In Keener v. Keener, the Supreme Court of Virginia held that valid forfeiture clauses in revocable trusts are to be strictly enforced. Keener was decided on September 18, 2009, and you can read the full opinion by Senior Justice Russell here.

Keener is a significant case because it is the first time that the Supreme Court has expanded the "strict enforcement" rule from wills to their ever-more-popular estate planning cousin: revocable trusts.

First, some background. A forfeiture clause -- also known as a "no contest" or "in terrorem" provision -- typically looks something like this:
If any beneficiary of this will shall conduct or take part in any proceedings to invalidate or set aside this will or any provisions of this will, or to contest any action proposed to be taken by my Executor, then, in such event, the provision made in this will for the benefit of such person shall be revoked. Such person shall cease to have any right to any portion my estate, and the share of such person shall be distributed as if such person were deceased.
Wow! Sounds rather scary, no?

In fact, their scariness is the reason for the name "in terrorem," which is Latin for "to frighten": the purpose of including this kind of language in one's will (or trust) is to discourage the beneficiaries from engaging in unnecessary legal wrangling -- from going straight from the funeral home to the courthouse, if you will.

The discouragement is accomplished by frightening the potential-litigant by way of threatening to take away his or her portion of the estate.

Whether a court will enfoce a forfeiture clause like the one above depends upon the state in which the will is probated. Some states enforce the provisions in all cases, while other states refuse to enforce them if probable cause exists for challenging the will.

In general, Virginia courts have tended historically to reach decisions that promote individual autonomy, and Virginia law regarding forfeiture clauses is no exception: Virginia strictly enforces the clauses because -- in the words of past decisions -- doing so protects an individual's "right to dispose of his property as he sees fit."

As a second rationale, Virginia courts also refer to the "societal benefit of deterring the bitter family disputes" that typically result when sibilings -- or parents and children -- take one another to court to fight-out what mom or dad really meant to do with their property.

Getting back to Keener: the facts in the case are interesting, if a bit convoluted.

Debra Keener attempted to qualify as the administrator of her father's intestate estate, alleging that he did not have a will (though later agreeing, in court, to abide by the provisions of his will).

Mr. Keener's will (a pourover will, which left everything to the trustee of his revocable trust, to be distributed according to its provisions) did not include a forfeiture clause, while his revocable trust did include such a clause.

Certain of Mr. Keener's children argued that Debra's attempt to qualify as administrator should disqualify her from inheriting under the revocable trust, since it constituted a challenge to the trust (thereby triggering the forfeiture clause).

The Supreme Court disagreed: the Court held that Debra "made no objection to, or contest of, any provision of the trust" -- instead, her challenge was a challenge to the will.

Notwithstanding the Court's decision on the particular facts of Keener, it held that forfeiture clauses will be strictly enforced in revocable trusts, and it explained that the rationales for the newly-announced rule are the same as those for enforcing the provisions in wills: (1) protecting one's right to dispose of property in accordance one's wishes and (2) decreasing the likelihood of unnecessary and/or harmful litigation among beneficiaries.

Debra's siblings who objected to her actions, therefore, won a Pyrrhic victory (and perhaps not even that?), as they expanded the Court's prior rulings on forfeiture clauses but lost on the facts of their case.