An action brought by a trust beneficiary to remedy a breach of fiduciary duty ought not to trigger the trust’s in-terrorem clause, assuming there is one, unless brought in bad faith

A court should not enforce a trust in terrorem clause if its enforcement under the particular facts and circumstances would frustrate settlor intent. Assuming that the settlor intended to impress a trust upon the property, not to make a gift to the “trustee,” then it is inconsistent with the fiduciary principle for a court to apply a “no contest” clause to good-faith actions brought by beneficiaries to remedy breaches of trust, particularly intentional breaches of trust. The breach of the duty of loyalty particularly comes to mind. Accountability, after all, is the glue that holds the institution of the trust together. A truly unaccountable “trustee” is indistinguishable from the donee of a completed gift. Equity should not enforce an in terrorem clause if to do so would effectively void the very trust the clause was intended to protect. By “unaccountable” we mean free of fiduciary constraints. See, e.g., Salce v. Cardello, 301 A.3d 1031 (Conn. 2023).

All this having been said, a trust beneficiary who, in the face of an in terrorem clause, vexatiously and relentlessly challenges in the courts not the validity of the trust but the trustee’s authority and/or performance may still risk having his or her equitable interest forfeited. Equity may look upon such behavior as an indirect attack on the trust itself. Recall the maxim that equity deals in substance rather than in form. Equity’s maxims applicable in the trust context are taken up generally in §8.12 of Loring and Rounds: A Trustee’s Handbook (2025), the relevant portions of which section are reproduced in the appendix below.

Consider the case of Barry v. Barry, 851 S.E.2d 119 (Ga. App. 2020). Deceased father’s inter vivos trust instrument provided for equal terminal distributions to his three children. There was an associated pour-over will. Both instruments contained in-terrorem clauses. His only son (Thomas), a resident of Maine, was trustee of the trust and personal representative of the probate estate. A daughter (Cynthia), who was a practicing attorney and resident of Florida, filed a lawsuit seeking “enforcement” of the will and an “accounting” of Thomas’ administration of the trust. Following an extensive evidentiary hearing, the trial court determined that Cynthia was not actually seeking enforcement of the will or an accounting of the trust, but instead was engaging in unwarranted vexatious litigation designed to contest the authority that had been granted to Thomas in the governing instruments. The trial court enforced the in-terrorem clause against Cynthia. The intermediate appellate court affirmed.

There was incontrovertible evidence that Thomas had done everything humanly possible to openly, competently, diplomatically, exhaustively, and expeditiously carry out the terms of the trust and the pour-over will, while every step of the way Cynthia had been doing everything she could to gum up the works. Thomas, for example attempted to hire two different local lawyers in 2 the father’s small Georgia town for the purpose of offering the will for probate. Cynthia, however, had already contacted each and provided just enough information to preclude them from representing Thomas without creating a conflict of interest. She would retain neither. She would frustrate his efforts to effect distribution of Perth Mint Certificates by failing to establish a personal account to receive her share, this though Thomas had duly provided her with all the necessary paperwork. Thomas attempted to schedule a time for the three siblings to meet at the father’s residence in order to divvy up the personal property. Cynthia refused to participate, and then insisted that Thomas failed to provide her with an inventory of the home’s contents. “As stated by the trial court, ‘[Cynthia] was given an opportunity to literally walk through the house and get what she wanted from it. She waived any right to object by her overt inaction.” One could go on and on. The trial court did just that. “Faced with this evidence, the trial court did not err in concluding that Cynthia, at least indirectly, contested the validity of the provisions of the Trust that named Thomas trustee and granted him the authority to value and divide the trust. Because its finding in this regard are supported by the record, the court did not err by holding that Cynthia invoked the in terrorem clause.”