Carlson v. Colangelo, 2025 NY Slip Op 02264
(Court of Appeals, April 17, 2025)
Any Passover Seder worth its salt includes the family’s youngest member reciting The Four Questions. The first of The Four Questions: “how is this night different from all other nights?” This Passover, the New York State Court of Appeals issued a decision about a family unlikely to celebrate together. The decedent in Carlson fell in love with his nurse. His daughter did not.
The question before the Court: how is nurse/girlfriend’s lawsuit against daughter different from other lawsuits that would trigger a “no-contest clause?” In a 4 to 3 decision, the Court’s majority answered: girlfriend’s lawsuit is different from other lawsuits, and does not trigger the no-contest clause in decedent’s Trust, because girlfriend’s lawsuit seeks to enforce the terms of the Trust, not challenge them.
Decedent executed a Trust the month before he died directing that girlfriend/former nurse take decedent’s home and that daughter take decedent’s LLC interest. The Trust nominated daughter to serve as trustee and provided further that it is decedent’s “sincere wish and desire” for daughter to provide a stream of income to girlfriend not to exceed $350,000 in total.
The Trust contains a no-contest clause stating:
In the event that any heir, distributee, beneficiary, agency, organization or other individual (“challenger”) 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 distribution thereof in any way, then the Grantor directs that such rights of such challenger shall be ascertained as they would have been determined had that challenger predeceased the execution of this instrument and the Grantor, without living issue.
The purpose of a no-contest clause is to deter challenges to the validity or provisions of a Will or Trust. Generally, a beneficiary who challenges a document with a no-contest clause loses her right to take under the document. “No-contest clauses” are referred to as “in terrorem clauses” which means “in fear.” The stakes are high in challenges involving a no-contest clause because the challenger files in fear of losing benefits she would otherwise receive. Under New York law, “no-contest clauses” may be enforced; however, they are disfavored and strictly construed.
Two-and-a-half years after decedent died, daughter’s attorney sent girlfriend a letter stating that: (1) decedent had overestimated the value of the LLC, (2) that the LLC could not generate any income for girlfriend, and (3) that daughter would transfer the home to the girlfriend, as required by the Trust, in exchange for girlfriend waiving her right to income from the LLC and a release.
In response, girlfriend filed suit accusing daughter of commingling, self-dealing, and misusing the LLC funds. Her lawsuit sought: (1) an injunction directing the trust to distribute the home to girlfriend, (2) a declaration that girlfriend was entitled to the income stream, (3) a declaration that girlfriend was 50% owner of the business based on a $100,000 investment she had made in 2013, and (4) compensatory and punitive damages.
The trial court found that girlfriend was not 50% owner of the LLC, that her lawsuit triggered the Trust’s no-contest clause by challenging the distribution of 100% of the LLC to daughter, and, therefore, girlfriend lost her right to take all property under the Trust, including the home. The Appellate Division affirmed.
The Court of Appeals reversed, holding that girlfriend’s lawsuit did not trigger the no-contest clause because it sought to enforce the Trust’s provisions rather than to nullify the Trust or challenge its terms.
The majority’s rationale begins by listing proceedings that would have triggered the no-contest clause: (1) contesting the legality of the Trust instrument, (2) asserting that the Trust was created in violation of the law, (3) claiming that the Trust was not properly executed, (4) arguing that the Trust lacks a beneficiary, a trustee, a trust res, or delivery of the res, (5) attacking the grantor’s mental capacity, and (6) seeking to invalidate the Trust based on duress or undue influence.
The Court then distinguished girlfriend’s lawsuit from the claims above. First, girlfriend’s request for an injunction directing daughter to distribute the home to girlfriend sought to enforce the terms of the Trust.
Second, girlfriend’s claim that she is a 50% member of the LLC is not a challenge to the Trust because the Trust does not assert that decedent solely owned the LLC. Therefore, girlfriend’s claim that she is a 50% member did not challenge the term of the Trust directing that “all of grantor’s interest” in the LLC be distributed to daughter.
Third, girlfriend’s claim for a stream of income from the LLC sought to enforce the Trust term expressing decedent’s “sincere wish and desire” for daughter to provide a stream of income to girlfriend not to exceed $350,000.
The majority stated that whether a lawsuit triggers a no-contest clause generally depends “on the nature, not the merits, of the plaintiff’s claim.” Nevertheless, the majority recognized that the merits of a claim framed as seeking to enforce trust terms “might be so frivolous, so plainly contrary to the grantor’s intent, or so based in bad faith as to essentially contest the Trust itself” and thereby trigger a no-contest clause. Per the majority, girlfriend’s claim raised no such concern.
In contrast, the dissent found that girlfriend’s lawsuit triggered the no-contest clause, that girlfriend should not take any property under the Trust, including the home, and that the decision of the appellate division should be affirmed. The dissent critiques the majority for creating a confusing new standard – whether a claim framed as seeking to enforce trust terms “might be so frivolous, so plainly contrary to the grantor’s intent, or so based in bad faith as to essentially contest the Trust itself.” Specifically, the dissent states that it is unclear whether the standard is probable cause, non-frivolity, or something else, and argues that this lack of clarity will lead to confusion in the lower courts.
The dissent explains that Section 3-3.5(b) of the Estates Powers and Trusts Law provides “safe harbor” for beneficiaries to engage in certain discovery and construction proceeding without triggering a no-contest clause. Despite the availability of safe harbor proceedings, the dissent states that girlfriend “chartered a course of litigation from the outset without regard for the consequences.” The dissent concludes, “[c]hanging New York practice rules and unsettling our law on trusts is a high price to pay for saving [girlfriend] from the consequences of her actions.”
The takeaway: A beneficiary contemplating a lawsuit involving a Will or Trust with a no-contest clause should gauge the strength of the case by taking advantage of discovery permitted under the safe harbor provisions of Section 3-3.5(b) of the Estates Powers and Trusts Law. If a beneficiary continues beyond the safe harbor proceedings, the litigation should be framed, where possible, as seeking to enforce the terms of the Will or Trust. Nevertheless, litigation involving a Will or Trust containing a no-contest clause is perilous and a beneficiary should consult with counsel before filing an action.
Thicker Than Water will return soon. So let it be written. So let it be done.
