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Carte Blanche: The Court VS The Testator - No-Contest Clauses & The 1975 Act
Date: 26/03/2024 Type: Articles Topic: Private Client | Trusts | Wills and Estates | Inheritance | Next Generation Wealth | Investment and HNWI’s | Tax |It is trite law that there is freedom of testamentary expression in England and Wales but there is also no doubt that private client litigation, which effectively thwarts that freedom, is on the rise. There are an increasing number of both will challenges and claims for further financial provision pursuant to the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act). In this context a testator may well want to protect their wishes and their intended beneficiaries from any challenge in the future by including a no-contest clause in their will.
What are no-contest clauses?
A testator is free to make conditional gifts in their will. A no-contest clause stands as a condition in the sense that the beneficiary will only benefit from the specific gift in the will if they do not raise a challenge. It is essentially a warning from the testator to the beneficiary: do not look for more financial provision or risk losing what you already have. Clearly these clauses (also known as forfeiture clauses or “in Terrorem” clauses) are most often deployed in circumstances where the testator anticipates disappointed beneficiaries and potentially a dispute.
Consequently no-contest clauses are deployed as a deterrent to opportunistic beneficiaries. The challenge for the testator lies in the balance of making a gift that is big enough such that its loss would be significant and potentially not worth a challenge, but not so big that it exceeds what the testator wants to gift in the first place.
It is important to note that to be valid a no-contest clause must provide for a gift over. In other words, it must direct what happens to any failed gift, perhaps for the gift to fall into residue or for the will to take effect as if that gift had never existed.
Nathan v Leonard [2002]
An interesting case which discussed forfeiture in the context of a 1975 Act claim was Nathan v Leonard [2002]. In an attempt to safeguard her wishes, the testatrix included a no-contest clause, stipulating that if any of the named beneficiaries (which included friends, family members and charities) contested or disagreed with the Will, then everything in the estate would be inherited by the Deceased’s two friends (themselves beneficiaries).
On the death of the testatrix, the claimant’s son (one of several beneficiaries under the will), brought proceedings pursuant to the 1975 Act seeking further provision from the estate.
In the event the clause was actually held to be invalid on the basis of uncertainty due to some missing words. However, John Martin QC was of the view that, had it been sufficiently certain, it would have been upheld and the 1975 Act claim would have breached the condition and caused both the family members and the charities to lose their entitlement, notwithstanding that the charities hadn’t raised the challenge in the first place. The Judge did not agree with the charities that such a clause was “repugnant” or contrary to public policy on the basis that a condition is only repugnant if it is inconsistent with ownership. This condition was not.
It was held that when bringing the 1975 Act claim, the act of forfeiture would have to be taken into account because the will (and the clause) would remain intact. While it would depend entirely on the particular wording, the Judge in this case considered that the forfeiture would have taken place whether the challenge (in this case the 1975 Act claim) succeeded or not.
The Judge did also consider what a triggering event would look like. Would mere threats, expressed unhappiness or a letter before action be enough? He held not. Only actual proceedings would trigger the forfeiture.
Sims v Pimlott [2023]
In this more recent case, the Testator included a no-contest clause that the Court held to be effective. Dr Sims was married to Valerie Sim for nearly 20 years and divorce proceedings were on foot at the date of his death. Dr Sims’ will provided that Valerie would receive:
- A pecuniary legacy of £250,000 absolutely on the basis that she (i) released her claims against the estate under the 1975 Act, and (ii) she vacated the matrimonial home; and
- A pecuniary legacy of £125,000 on the condition that she released her interest in their jointly owned property in Dubai.
Valerie was also entitled to a life interest in the residuary estate and Dr Sims’ pension.
In the event she did not comply with the conditions and issued a 1975 Act claim.
The Court held that where financial provision was objectively reasonable, then it was entirely appropriate for a testator to include a no-contest clause designed to discourage challenges. It was also held that the claimant couldn’t trigger the forfeiture, and then bring a claim claiming inadequate provision as a result of that forfeiture.
In this case it was held that the provision made in the will had been objectively reasonable but that with the triggering of the forfeiture clause, all Mrs Sims was left with was a life interest in the residuary estate, after deduction of legacies and costs, and subject to an overriding power of appointment. The problem was that the matrimonial home had to be sold to fund legacies and so Mrs Sim would have been left homeless. For this reason, only, the Court considered it was appropriate to vary the trusts and use capital to purchase a house for Mrs Sim to live in for the rest of her life.
Conclusion
These decisions confirm the enforceability of no-contest clauses and provide some support for the freedom of testation. No-contest clauses will take effect whether or not a claim is successful or justified and will stand provided they are reasonable and properly drafted (taking account of reasonable financial provision for the relevant beneficiary). Claimants should expect the clauses to be triggered and take that into account before launching proceedings, Testators should carefully pitch their gifts so as to meet financial provision requirements, but also to discourage challenges.
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