Stewart v. Stewart – 9/27/2012
Arizona Court of Appeals Division One Holds That an In Terrorem Clause in a Testamentary Instrument That Serves to Disinherit a Beneficiary Who Either Challenges the Will or Cooperates in Such a Challenge Is Enforceable Unless the Beneficiary Had Probable Cause to Contest the Testamentary Instrument.
Thomas Stewart was survived by five adult children. Thomas’s testamentary instruments excluded his son Sean from any interest in the estate. Those instruments also contained in terrorem clauses that disinherit any beneficiary who contests, or “cooperates or aids” any beneficiary in contesting, any part of the instruments, any discretionary act of the personal representative or trustee, or Thomas’s testamentary or mental capacity. Sean filed suit to invalidate the instruments and for damages against his brother Slade, a co-personal representative. Sean moved to invalidate the in terrorem clauses, which the court granted. After Sean settled his claims against Slade and the estate, the court approved the settlement and entered a judgment that included language invalidating the in terrorem clauses. Slade and his co-personal representative Dan Kourkoumelis, timely appealed that portion of the judgment.
The Arizona Appeals Court affirmed in part and reversed in part. The Court first rejected Appellants’ argument that Sean lacked standing to challenge the in terrorem clauses, explaining that although Sean was not a beneficiary, the clauses nonetheless impaired his ability to conduct discovery from the beneficiaries who might refuse to cooperate with him in discovery for fear of being disinherited. For this same reason, the Court rejected Appellants’ argument that the challenge to the in terrorem clauses was not ripe – it was not necessary for Appellants to enforce the clauses against a beneficiary before the clauses’ validity could be considered because the threat of enforcement against beneficiaries created an actual controversy.
The Court, however, held that the in terrorem clauses were not facially invalid under either A.R.S. § 14-2517 or public policy. A.R.S. § 14-2517 states that an in terrorem clause in a will is unenforceable “if probable cause exists” to contest the will. In this case, the superior court did not apply the probable cause standard, and instead incorrectly ruled that the clauses necessarily conflicted with A.R.S. § 14-2517 because they applied “regardless of whether any such contest is made in good faith or is ultimately successful.” The superior court also erred in ruling that the in terrorem clauses violated public policy as encouraging perjury and impeding the judicial process. The Court explained that the record did not support this conclusion, especially because the in terrorem clauses should have been construed as disinheriting beneficiaries only if they voluntarily cooperated or aided a party contesting the testamentary instruments.
Presiding Judge Timmer authored the opinion; Judges Gemill and Downie concurred.