The Perils of Poison Pill Clauses

The Perils of Poison Pill Clauses

by Michelle Kaminsky, Esq., August 2011

When former “Superman” actor Jackie Cooper died, the media latched on to a short section in his will that would essentially disinherit anyone who dared challenge the document: the “poison pill” clause. While these types of provisions have been around for quite a while—even Michael Jackson had one in his living trust—they're not always enforceable or even advisable.

In fact, because poison pill clauses are a rather confusing legal issue with so many wrinkles, their use—especially in broad general terms—is discouraged by many legal professionals.

What's a Poison Pill Clause in a Will?

The proper legal term is a “no contest clause,” and its purpose is to discourage people from challenging the provisions of a living trust or will.

Generally, a poison pill clause provides that anyone who contests the will or trust would receive a paltry sum, often one dollar. The potential penalty is considered the “poison” that would kill the beneficiary's chances of receiving a larger inheritance. In legal-speak, such a provision is also called an “in terrorem” clause as its intent is to scare potential heirs out of fighting for a bigger chunk of the estate.

Disinheriting Someone vs. Inserting a Poison Pill Clause

If the testator would like to disinherit someone entirely, he or she can expressly do so in the will without a no contest clause. On the other hand, if a person is omitted from a will that also contains a no contest clause, he or she really has no reason not to challenge the will as there's nothing to lose either way.

Accordingly, where there is a no contest clause, it's advisable to leave something for each beneficiary—arguably something enough to convince them that it's not worth losing over a will contest. Indeed, Beverly Hills attorney Randy Spiro, specifically suggests “mak[ing] a gift to the heir (e.g. one of the children) that is large enough to cause the heir to worry that the risk of losing what he or she has been given is simply not worth it.”

Are Poison Pill Clauses Enforceable?

Whether a no contest clause is enforceable depends on the state in which the will or trust is executed. In many jurisdictions, no contest clauses are indeed enforceable, but are often interpreted quite strictly, which means they may not end up being enforced if challenged.

The reasoning behind this strictness is because the enforcement of such a clause results in the forfeiture of property as well as other rights—consequences not to be taken lightly. Indeed, states that have outlawed no contest clauses altogether, such as Florida, tend to follow this public policy reasoning.

Sections 2-517 (wills) and 3-905 (trusts) of the Uniform Probate Code, however, do allow for no contest clauses unless the person challenging the will or trust has probable cause to do so:

A provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings.

Several states have adopted this provision with the probable cause exception, especially since courts don't want to discourage litigation if there is a genuine concern that a testator lacked capacity or a beneficiary exhibited undue influence on the testator.

Meanwhile, other states continue to tweak their approaches to no contest clauses. California, for example, recently passed a law that came into effect in January of 2010, laying down strict rules as to when such clauses would be enforceable. Before that, most poison pill clauses would have been enforceable in the Golden State.

Just because a state permits no contest clauses, though, doesn't mean the provisions will always stand up in court. To the contrary, complicated legal questions may then arise, including whether the clause was validly incorporated into the will/trust as well as what actions constitute a “contest,” which some states define and others don't. Such decisions are made on a case-by-case basis and based on an application of state law.

Final Thoughts on Poison Pill Clauses

Poison pill clauses are full of nuances and potential unintended consequences—and on top of that, this area of law is constantly changing. Accordingly, make sure you read up on the warning labels about poison pill clauses before you decide to incorporate one into your last will and testament.