The recent opinion by the Appellate Division, Third Department, in In re Strom Irrevocable Trust III, 2022 NY Slip Op 01356, provides a cautionary tale to estate litigators who conduct SCPA 1404 examinations in the face of a trust instrument’s in terrorem clause. While in terrorem clauses are strictly construed, the Appellate Division found that the subject clause had been triggered as a result of conduct engaged in by the respondent during the course of a probate proceeding regarding the grantor’s will.
Before the Court was an appeal from an Order of the Surrogate’s Court, Warren County, which granted petitioner’s motion determining that the respondent triggered the in terrorem clause of an irrevocable trust of which she was a beneficiary.
The record revealed that the subject trust was created by the grantor/decedent for the benefit of her two daughters. Shortly before her death, she transferred her home in New Jersey to the trust and the proceeds from the sale of the house were subsequently deposited into the trust. The trust agreement contained an in terrorem clause whereby any beneficiary who challenged any of the terms of the trust forfeited her interest thereunder. Notably, the clause specifically exempted from its scope the provisions for discovery set forth in EPTL 3-3.5 and SCPA 1404, but also stated that any attempt to expand the discovery beyond what was typically authorized by the provisions would result in a forfeiture. The trustee subsequently filed an order to show cause seeking a determination that the respondent had violated the clause based upon, inter alia, conduct she engaged in during the course of SCPA 1404 examinations regarding the decedent’s will. The Surrogate’s Court granted the trustee’s order to show cause in its entirety, finding that the respondent violated the clause.
In affirming the order of the Surrogate’s Court, the Appellate Division observed that while engaging in SCPA 1404 discovery, the respondent filed affidavits in which she questioned whether the grantor’s home had been lawfully and properly transferred to the trust, and therefore whether the trust may fail due to being unfunded. She also engaged in discovery and depositions of numerous individuals who were involved in the sale of the home, which had no connection to the probate of the will, and was thus found to be in violation of the grantor’s intent as expressed in the no contest clause. Specifically, the Court was troubled by the respondent’s conduct questioning the deposit of the sale proceeds into the trust rather than the grantor’s estate, when the house was the primary asset of the trust.
Accordingly, the Court held that the Surrogate’s Court had correctly determined that the respondent triggered the in terrorem clause and forfeited any disposition to her under the trust.