It is a rare day that the Court of Appeals, New York’s highest Court, deals with trust and estate matters, let alone something as granular as the validity of an in terrorem clause. But speaketh they did, on April 17, 2025, in a lengthy opinion with a 13-page dissent to boot (Carlson v. Colangelo, 2025 NY Slip Op 02264).
In this case, the Decedent never married but he was survived by a romantic partner, Kristine M. Carlson (“Carlson”), and by his daughter Crissy Colangelo (“Colangelo”), whose mother was a prior romantic partner of the Decedent. The Decedent executed a pour-over Will and Revocable Trust the month before he died. Under the Trust, the Decedent left his residence in Cortlandt Manor, New York to Carlson and his “interest” in an LLC which owned real estate to Colangelo with a statement that “it is Grantor’s sincere wish and desire that Crissy Colangelo provide a stream of income, not to exceed the sum of $350,000 in total, to Kristine M. Carlson.” The Decedent named Colangelo as Trustee.
Both instruments contained in terrorem clauses. The Trust clause provided:
In the event that any heir, distributee, beneficiary…shall contest any aspect of this Trust, or the distribution of the Grantor’s assets pursuant to his Last Will, inter vivos Trust agreement, beneficiary designations or non-probate beneficiary designations, or shall attempt to set aside, nullify, contest or void the distributions thereof in any way …
then the challenger would forfeit benefits under the instrument.
After a number of failed attempts to resolve issues between them, Carlson commenced an action in Supreme Court seeking to compel Colangelo to distribute the residence to her, a declaration that Carlson was a pre-mortem 50% owner of the LLC, a direction that Carlson is entitled to the $350,000 income stream from the LLC, an accounting for the LLC, and punitive damages.
Colangelo moved for summary judgment, seeking a determination that Carlson violated the in terrorem clause and thereby forfeited her interest under the Trust. Carlson opposed, responding that her action was meant to construe and enforce the Trust, not to contest it. Supreme Court granted the motion, invoking the in terrorem clause, and stating “it cannot be disputed that [Carlson] contested the distribution of the Grantor’s 100% interest in Dempsaco to Colangelo under the Trust.” On appeal, the Appellate Division modified the Supreme Court’s order by denying Colangelo’s request for legal fees, but otherwise affirmed the Supreme Court’s determination.
In a 4-3 decision, the Court of Appeals modified the Appellate Division’s order by finding that Carlson’s action did not trigger the in terrorem clause. The majority of the Court held: “because [Carlson’s] lawsuit seeks to enforce the Trust provisions as written and intended by the Grantor, [Carlson] did not attempt to nullify the Trust or challenge its terms”. They further stated: “it would be contrary to the Grantor’s intent to hold that a party cannot file an action to receive exactly that which the Grantor set aside for transfer to their named beneficiary.”
Writing for the dissent, Judge Garcia opined that “because [Carlson’s] lawsuit challenged the decedent’s intended distribution of his assets as provided for in the Trust, I would hold, as did both Courts below, that [Carlson] triggered the in terrorem clause.”
The dissent discusses the public policy issues underlying in terrorem clauses and, taking a polite swipe at the majority opinion’s logic, states:
Taken to its logical end, under the majority’s approach, a challenger could claim, without any support, that decedent had no interest in any of the Trust property, that the Trust had no property at all to distribute, and that challenger owned all the Trust property – and then avoid the consequences of an in terrorem clause by claiming the suit was merely an effort to ensure that the Grantor’s intent was fulfilled. This is not how in terrorem clauses work, nor how they have been enforced.
While the majority opinion gives some clarity on in terrorem clauses generally, it does seem to hold that the result leaves future disputes as fact specific to each case. One of the problems is that the statutory safe harbor provisions under EPTL 3-3.5, which lays out certain actions which will not trigger an in terrorem clause, are applicable only to Wills, not Trusts. With the increasing use of Revocable Trusts as Will substitutes, the EPTL/SCPA Advisory Committee, in its Fourth Report in 1995 (of which your author was the draftsperson) proposed a number of amendments, including a specific amendment to EPTL 3-3.5, largely to conform substantive law and procedure in Trust contests with Will contests, and which added Trusts to the safe harbor provisions. That proposal has not yet been adopted.
For now, continuing to draft broad in terrorem clauses to frustrate litigation, if that is the Grantor’s intent (and when would it not be?), would seem to be the best course of action. But the Grantor should be advised that applying a forfeiture clause to litigation seeking simply to require the Trustee to discharge its duties is problematical. Proceedings seeking construction of an instrument, or requiring a fiduciary to file an accounting, should not trigger a forfeiture.
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