An in terrorem clause, also referred to as a “no-contest” is a clause in a will that states that if a beneficiary challenges a provision in the will or the entire will, that beneficiary’s bequest will be void. The purpose of an in terrorem clause is to prevent a will contest. While will contests are often well founded, they are also often unfounded. Because they are time-consuming and costly, testators sometimes include in terrorem clauses because they anticipate that a disgruntled beneficiary will contest the will and wants to discourage him or her from doing so.
In Sochurek v. Ammirato, the decedent was survived by his wife and his two daughters from a previous marriage. He named his wife the executor. The will gave the wife a life interest in a business that he co-owned, and that upon the death of the wife, the daughters would inherit his interest in the business. The will also gave the wife the authority to run, manage, or sell his interest in the business as she saw fit.
In the process of administering the decedent’s estate, the wife did decide to sell the business for $7.5 million. As remainder beneficiaries of the wife’s life estate, it was necessary for a determination to be made of what the daughters’ interests would be in the liquidated assets of the business. The wife entered into a standstill agreement with the daughters to hold the proceeds from the sales in a segregated bank account until a determination was made.
Apparently the daughters questioned the wife’s actions after they entered into the standstill agreement. It appears as if they were not satisfied with what was determined to be their portion of the proceeds of the sale of their father’s business, as they filed a claim against the wife to recover damages for breach of the standstill agreement, breach of fiduciary duty, and imposition of a constructive trust. Further, the daughters demanded an accounting of the assets of the business that was sold.
Believing that by suing her in her role as executor of the father’s estate, the wife felt that the daughters had violated the in terrorem. Pursuant to SCPA 1420, the wife commenced an action in the Surrogate’s Court to construct the terrorem clause. In her petition the wife argued that the husband’s will gave the wife the sole discretion to dispose of any of the assets of the estate, including the business. By suing her, she argued, the daughters interfered with her administration of the decedent’s estate and by doing so violated the in terrorem clause. The Surrogate’s Court agreed with the wife. It found that the daughters had violated the in terrorem clause of the will, and as a result forfeited their legacies under the will. The daughters appealed.
The Appellate Division looked at what the daughters were seeking to achieve by suing the wife. The daughters were questioning whether the wife breach her fiduciary duty as executor and as holder of the life estate in the decedent’s business. What the daughters did not do was challenge the will itself. There is no indication that they questioned the validity of the will, nor did they question the provisions of he will granting the wife discretion to dispose of estate assets in any way that she felt advisable in her capacity as executor. Finally, the court noted that by claiming that the wife violated the standstill agreement was not in any way challenging the will. Thus, the Appellate Division reversed the decision of the Surrogate’s Court and found that the daughters had not violated the in terrorem clause of their father’s will.