Trust Beneficiary Forfeits Beneficial Interest After Violating No-Contest Clause

By Gene M. Carlino August 25, 2020Court Decisions

In July, the Massachusetts Appeal Court in Capobianco v. Dischino Capobianco v. Dischino, 19-P-197 (Mass. App. Ct. Jul. 9, 2020) ruled that a beneficiary forfeited his beneficial interest in a Trust established by his parents when he filed an action seeking to remove the successor Trustees and be appointed as sole Trustee. The Court held that the beneficiary, by bringing the action, violated the no-contest clause, which provided that any person who attempts to contest any provision of the Trust is deemed to have predeceased the settlors.

A no-contest clause is also known as an in terrorem clause, which is Latin for terrorize. As its name implies, if a beneficiary violates the no-contest clause, he/she will suffer the consequences set forth in the clause, which is often to forfeit his/her interest as a beneficiary.

The Court began its discussion by noting that no-contest clauses are narrowly construed because generally the law disfavors forfeitures. The Court pointed out, however, that the Trust instrument under consideration specifically prevented a beneficiary from serving as a sole Trustee. By bringing an action to remove the Trustees and to serve alone, he challenged the terms of the Trust and violated the no-contest clause. The Court notes that had the beneficiary been successful in removing the Trustees and appointing himself, the terms of the Trust regarding the succession of the Trustees would not have been carried out.

The case highlights the importance of taking great care when considering a challenge to a trustee’s actions. If the challenging party is a beneficiary and the trust contains a no-contest clause, the no-contest clause has to be reviewed carefully. In the Capobianco case, had the beneficiary sought an accounting or filed a petition seeking an interpretation of the instrument, approaches the Court noted were well within his rights, he would not have forfeited his interest. If you would like more information about this decision or need assistance with your estate and trust planning, please contact PLDO Partner Gene M. Carlino in Rhode Island at 401-824-5100 or in our Florida office at 561-362-2030 or email gcarlino@pldolaw.com.

 

 

 

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Gene M. Carlino is a Partner with Pannone Lopes Devereaux & O'Gara LLC. He is a highly respected attorney with more than 25 years of experience in all areas of estate and tax planning and administration, Medicaid planning, probate administration and trust litigation. His practice includes advising and advocating for clients in all matters involving federal and state taxation, including representing individuals before the Internal Revenue Service in contested assessments during the examination phase, before the Appeals Division, and at trial in the United States Tax Court, the United States Court of Federal Claims, and the Federal District Court. Prior to joining the firm, he was the founder and successful business owner of Carlino Law Associates, PC since 1999. Attorney Carlino is a prominent member of the legal community, and was honored by his peers and judges with the AV Preeminent rating from Martindale Hubbell, which is the highest rating based on both legal ability and ethics. He has vast experience in all phases of the tax collection process, including negotiating installment agreements, Offers in Compromise, penalty abatement requests if reasonable cause exists and advising clients on how to properly structure their affairs within the bounds of the law, so as to better position clients for a favorable settlement and to avoid unnecessary exposure to collection procedures. In addition, he advises clients in all matters of federal income tax planning, including structuring and implementing like-kind exchanges from routine to a highly sophisticated nature, and advising corporate taxpayers and shareholders in connection with tax-free reorganizations. In his estate and trust planning and administration practice, he counsels clients in a wide range of areas that include funded revocable trusts, funded irrevocable trusts, funded life insurance trusts, planning for families with a noncitizen spouse and for families with special needs children or beneficiaries, grantor retained annuity trusts, sales to irrevocable trusts using a conventional promissory note and/or using a self-canceling installment note, and domestic asset protection trusts. In addition, Attorney Carlino has significant experience in the practice of Elder Law, including advising individuals in all phases of the Medicaid planning and the eligibility process, assisting in designing and implementing Medicaid plans and handling appeals through the state administrative hearing process. Attorney Carlino earned his J.D. from Boston University School of Law, his LLM in Taxation from New York University School of Law and a B.S. in Accountancy from Providence College, magna cum laude. He is licensed to practice in Rhode Island, Massachusetts and Florida and also admitted to the United States Tax Court, United States Court of Federal Claims, the Federal District Court of Rhode Island and the United States District Court for  the Southern District of Florida. He is also licensed by the National Football League Player's Associations as a contract advisor.

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