Beneficiaries’ challenge did not violate will’s no-contest clause

A circuit court misinterpreted a will’s no-contest clause and erroneously found that several trust beneficiaries forfeited their interests by moving to disqualify the trustee for misconduct, the Court of Appeals of Virginia has held in an unpublished opinion.

The beneficiaries objected to the trustee’s qualification for overbilling the estate, as well as impaired judgment and delayed distributions. The circuit court denied their motion and held that they violated the will’s no-contest clause, thereby forfeiting the beneficiaries’ interests.

Judge Richard Y. AtLee Jr. disagreed, finding that the language in the no-contest clause did not unmistakably convey the testator’s intent that the clause apply to the beneficiaries’ motion.

“That [the testator] specifically contemplated the possibility that [the named trustee] may be unable to qualify illustrates that he did not intend to bar all challenges to [their] qualifications, let alone challenges based on conduct occurring after [the testator’s] death,” the judge wrote.

Joined by Judges Lisa M. Lorish and Steven C. Frucci, AtLee vacated the circuit court’s judgment and remanded the case in Bakwin, et al., v. Schlesinger (VLW 025-7-299).

Rightful inheritance

The beneficiaries were represented by New York City attorney Raymond Granger, along with Glen Robertson of Wolcott Rivers Gates in Virginia Beach and Dennis Wiley of McLaughlin & Stern in New York. “We’re grateful for this thorough and thoughtful opinion,” Granger said.

“It’s been tragic and traumatic for our clients to have their rightful inheritance denied for so long,” Robertson lamented. “It seemed clear to us that this was not the type of action the testator intended — to cause his children and stepchildren to be disinherited.”

Granger pointed out that the record did not reflect the total legal fees charged to the estate and forwarded their appellate briefs to Virginia Lawyers Weekly. According to their opening brief, more than $2 million in legal fees was charged to the estate over five accountings.

Robert McFarland, Michael Barker and Robert Lofton of McGuireWoods in Norfolk and Richmond represented the appellee. None responded to a request for comment.

Disqualification denied

Michael Bakwin passed away in 2018. His will named Sanford Schlesinger, a New York attorney who drafted Bakwin’s estate documents, as executor and testamentary trustee. Schlesinger’s wife, Lianne Lazetera, was named as successor executor and trustee.

Schlesinger hired his own firm, as well as McGuireWoods, to handle the probate. Schlesinger’s first accounting showed nearly a million dollars charged for legal fees. Seven named beneficiaries of Bakwin’s trusts objected to the fees as extremely high and unreasonable.

The commissioner of accounts directed Schlesinger to restore $485,000 of the fees to Bakwin’s estate but let him recharacterize $350,000 of that money as a commission. The seven beneficiaries then moved to disqualify Schlesinger and Lazetera as trustees for misconduct.

The beneficiaries cited Schlesinger’s overbilling, impaired judgment in managing the estate’s investment assets and his delay in making preliminary distributions as grounds for disqualification. The circuit court denied the beneficiaries’ motion.

Further, the court held that the beneficiaries had violated the will’s no-contest clause, thus forfeiting their interests in Bakwin’s estate. After the court granted partial summary judgment to Schlesinger, the beneficiaries appealed.

Simultaneously strict

Looking to the Supreme Court of Virginia’s 2020 opinion in Hunter v. Hunter, AtLee explained that no-contest provisions are simultaneously strictly enforced and strictly construed.

“They are strictly enforced because the common law honors ‘the societal benefit of deterring the bitter family disputes that will contests frequently engender,’” he said. “And they are strictly construed because Virginia ‘respect[s] the ancient maxim that “equity abhors forfeitures.’”

“They are also strictly construed because ‘the testator, or a skilled draftsman acting at his direction has the opportunity to select the language that will most precisely express the testator’s intent,’” the judge noted, citing the Supreme Court’s opinion in Keener v. Keener.

Further, AtLee said that strict enforcement “means that the provision will be ‘enforce[d] … without any wincing … concerning its alleged harshness or unfairness — so long as the testator or settlor clearly intended the forfeiture.’”

“And ‘strictly construed’ means ‘that the intent to forfeit must be very clear’ and ‘[t]he language used must “precisely express” the specific intent to cause a forfeiture,’” he wrote, adding that strict enforcement ‘“cannot be justified be mere inferences of intent,’ and the instrument must use ‘terms so clear and explicit as to leave no room for any other construction.’”

Typical clauses

Testamentary forfeiture clauses typically provide that anyone who challenges the validity of a will or any of its components forfeits any interests received under it, AtLee said. If the contestant is successful, the will and the clause are invalidated.

Here, Bakwin’s will contained a no-contest clause which applied to any proceeding to void, nullify or set aside all or any part of the will.

“To ‘void’ something is to render it ‘of no legal effect,’” the judge pointed out. “A court order that is void ab initio or has been voided by a superior court, for example, cannot legally bind the parties. Similarly, to ‘set aside’ means ‘to annul or vacate,’ while ‘nullify’ means ‘to make legally null and void.’”

Although Bakwin’s no-contest clause applied to proceedings to invalidate the legal effects of the will or its provisions, AtLee noted that “it does not necessarily apply to proceedings that merely threaten to undermine a provision’s practical effects.”

“Put another way, it prohibits attacks against the validity of the will or its provisions, but it does not prohibit beneficiaries from participating in proceedings that are collateral to issues raised in the will,” he wrote.

Supervisory authority

Rather than challenge the validity of any provision in Bakwin’s will, the appellants sought to intervene in the qualification of Schlesinger and Lazetera as testamentary trustees.

“Qualification places the trustee under the supervision of the commissioners of accounts, who ‘have general supervision of all fiduciaries admitted to qualify in the court,”’ the judge wrote.

“Moreover, a ‘court may intervene in the administration of a trust to the extent its jurisdiction is invoked by an interested person or as provided by law,’” he said. “Notably, a beneficiary ‘may petition the court to remove a trustee, or a trustee may be removed by the court on its own initiative.’”

Looking to the Third Restatement of Trusts, AtLee explained that “the same reasons that may justify a court removing a trustee may also justify the court refusing the trustee’s appointment in the first place.”

“Indeed, our Supreme Court has cited commentary that ‘[t]he principle of strict construction applies with compounding force to no-contest provisions in trusts’ because trusts ‘usually last for an extended period of time and … vest ownership and control of the property in the hands of a trustee,’” AtLee noted.

But the Hunter court cautioned that expansive use of trust forfeiture clauses was “problematic because by disinheriting beneficiaries who seek oversight of this fiduciary relationship, the clauses threaten to forfeit trust altogether.”

Whereas the code provides substantial supervisory authority over trusts, especially testamentary trusts, the judge said that qualification “is one process by which the circuit court exercises its oversight over the trust relationship.”

Unable to qualify

“Although Bakwin ‘appoint[ed]’ Schlesinger as trustee, he named Schlesinger’s wife and law partner, Lianne Lazetera, as the successor if Schlesinger was ‘unwilling or unable to qualify,’” AtLee wrote. (emphasis added)

In Estate of Newbill, a Texas Court of Appeals strictly construed a similar no-contest clause to find that it did not bar a beneficiary’s objection to the named executor’s qualification.

“In so concluding, the court relied on the fact that the testator had ‘expressly provided for the appointment of an alternate executor if [the named executor] should for any reason “fail to qualify,”’ AtLee pointed out, adding that the same result was warranted here.

The judge said Bakwin specifically contemplated the possibility that Schlesinger may be unable to qualify, thereby illustrating that he did not intend to bar all challenges to Schlesinger’s qualifications or those based on conduct occurring after his death.

“Moreover, the no-contest clause expressly barred conduct-based challenges to Bakwin’s own acts or omissions but did not reference conduct-based challenges to other fiduciaries, such as Schlesinger,” he wrote.

The panel found no support for the position that the appellants would not have violated the no-contest clause by raising a true question of fitness or other grounds. AtLee noted that “the court may also appoint a different trustee than the name trustee ‘for any other good cause shown.’”

Although Code § 64.2-1405(A), does not explain what may constitute good cause, the judge said “Code § 64.2-759 provides that a court may remove a trustee when ‘[t]he trustee has committed a serious breach of trust.’”

“According to the Restatement, such a breach is not limited to the trustee’s conduct as trustee; rather ‘serious or repeated misconduct, even unconnected with the trust itself, may justify removal,’” he said. (emphasis added)

Nor did the panel find support for the circuit court’s distinction between legal competence and disqualification on other grounds.

“Certainly, the circuit court could conclude that the appellants had failed to demonstrate good cause for disqualification, but that does not mean that they were trying to ‘void, set aside, or nullify’ a provision of the will,” AtLee wrote.

Finally, the panel rejected Schlesinger’s assertion that the appellants were required to allow him to qualify and thereafter seek his removal.

“If Bakwin intended such a procedure, clearer language was required,” the judge said. “Here, the language is not ‘so clear and explicit as to leave no room for any other construction.’”