In the Illinois First District Appellate Court, Caren A. Lederer and Katherine M. Oswald recently obtained an opinion clarifying the application and standards for enforcing no-contest clauses in a trust agreement.

The plaintiff in the case, the trustee of the family trust, filed a complaint for declaratory judgment in 2018 seeking a declaration of the trust’s terms in order to distribute the LLC interest held in the trust. The complaint alleged that the trust instrument provided for distribution of the trust’s cash from the sale of the LLC pursuant to a schedule granting a different percentage to each of the six adult beneficiaries rather than the residuary clause. Two beneficiaries countersued, claiming that the cash had to be distributed according to the residuary clause, and thus divided equally among the six beneficiaries. The trial court granted judgment for the trustee, and the appellate court affirmed the trial court order directing distribution.

In 2020, the trustee subsequently filed a petition for further declaratory relief, seeking instruction as to the enforcement of an in terrorem, or “no contest” clause which effectively disinherits any beneficiary who challenged or attacked the trust’s terms or distributions. The trial court applied the clause, disinheriting the defendants, and the defendants appealed.

The Appellate Court reversed that decision, finding that the defendants’ conduct in the prior litigation did not constitute an attack on the distributions under the trust agreement, because the dispute centered on what law controlled. Finding that the beneficiaries’ countersuit raised a reasonable question of law, the in terrorem clause did not apply to disinherit them. The opinion is expected to be published, and will provide estate planners, trustees, and counsel with much-needed direction on interpreting and enforcing such clauses.

Caren is an experienced business attorney handling commercial litigation and business dispute resolutions, trust and probate litigation. She regularly handles bankruptcy, workout, liquidation and refinancing services for banks, secured lenders and entrepreneurs, and condominium association governance and assessment collection on behalf of her clients

Katherine focuses her practice on estate planning, trust and estate administration and litigation. She advises a wide range of individuals, families, and business owners on succession planning. In addition to counseling her clients through the administration of probate estates, she regularly advises individual and corporate trustees regarding trust administration.