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Following up an advisory we published last year (click here to read), we offer this update on recent developments in the case of Salce v. Cardello that may have meaningful implications for the use and enforcement of no contest clauses in wills and trusts.

In a narrow and unusual ruling, the Connecticut Supreme Court denied the enforcement of a specific no contest clause, also known as an in terrorem clause or forfeiture clause. The Supreme Court explained that certain types of challenges, if they are brought in good faith, will not trigger the clause and disinherit a beneficiary. However, at the same time, the Supreme Court implicitly recognized that no contest clauses are generally valid and enforceable. And it left open the question of whether any challenge brought in good faith would avoid forfeiture, or whether certain challenges, even if they are brought in good faith, would cause a forfeiture.

Why is this important?

In Salce v. Cardello, one beneficiary of an estate tried to invoke a no contest clause against his sister when she pointed out mistakes by the Executor in filing the estate tax return (Form CT-706). This was a challenge to the actions of the Executor, not a challenge to the estate plan itself, which no contest clauses are traditionally meant to protect. The appellate court ruled that the no contest clause was valid and had been triggered, but then held that it could not be enforced against the sister to forfeit her inheritance. The appellate court’s reasoning was somewhat unexpected, because it expressly avoided the “good faith” exception, which had been understood as the typical grounds for protecting a beneficiary. (The “good faith” exception states that a challenge brought in good faith will not trigger a forfeiture.) Although the appellate court found that the sister had acted in good faith, it ruled in her favor strictly on public policy grounds: a court should not punish a beneficiary who seeks to correct errors in the administration of the estate.

The appellate court’s reasoning left open the question of whether Connecticut courts would continue to recognize a good faith exception to the enforcement of no contest clauses.

The Supreme Court did not fully answer that question. The Supreme Court affirmed the appellate court’s ruling – no contest clauses are valid, but no forfeiture here – but it modified the analysis. The Supreme Court explained that there was no forfeiture both because of public policy and because the sister had acted in good faith. Challenging the actions or inactions of an Executor could still trigger a no contest clause, for example, if the challenge is frivolous or brought for improper reasons, such as to harass the Executor.

The Supreme Court therefore reinforced that any claims must be brought in good faith, as a prerequisite. However, the Supreme Court did not explain whether good faith alone would be sufficient to avoid a forfeiture.

Takeaways

Can a beneficiary challenge an estate plan, if he or she believes in good faith that it is invalid, and avoid triggering a no contest clause? Salce v. Cardello does not answer that question. The case affirms that no contest clauses are valid in Connecticut; however, it says only that their enforceability in certain circumstances will be weighed against public policy goals, provided a particular claim is found to be brought in good faith.

For estate planners, no contest clauses may still be an effective strategy in Connecticut to deter a troublesome beneficiary, but it may not be a fail-safe solution to all possible challenges. Consider discussing no contest clauses or other estate planning strategies in more detail with your Wiggin and Dana attorney.

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