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In a Wyoming Trust Case, State Supreme Court Says No Special Treatment for Kids

Brooks Robinson

In a Wyoming Trust Case, State Supreme Court Says No Special Treatment for Kids
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In EGW v. First Federal Savings Bank of Sheridan, 413 P.3d 106 (Wyo. 2018), the Wyoming Supreme Court faced a question of first impression: whether an in terrorem clause operated so as to deprive minor beneficiaries of their beneficial interest in a trust, even if those did not participate in the trust challenge. Answering the question, the court enforced the in terrorem clause, holding that depriving the minor beneficiaries of their interests under the trust did not violate public policy.

In EGW, the minor beneficiaries’ grandfather, the settlor, established a revocable trust to manage his assets and distribute them upon his death. The trust originally benefitted the settlor’s son and grandchildren, but the settlor amended it, removing his son as beneficiary and adding an in terrorem clause. The clause provided: “Any challenge to this trust made directly by or on behalf of my son or grandchildren shall immediately terminate any interest in the Trust of any descendant of mine[.]”

The son filed a complaint contesting the trust amendment on undue influence grounds. The son lost his challenge to the trust amendment. The grandchildren then sought declaratory judgment that the in terrorem clause would not apply to them. They claimed the clause violated public policy by allowing a parent’s action to deprive minor children of property rights, contrary to constitutional provisions protecting minors, due process, and access to the courts, and was therefore void.

The trial court granted the trustee summary judgment, holding that the in terrorem clause did not violate public policy and the grandchildren were no longer beneficiaries because of their father’s challenge. The Wyoming Supreme Court affirmed, holding that in light of clear Wyoming authority supporting a testator’s ability to dispose of property as he chooses, a trust in terrorem clause terminating a minor beneficiary’s interest by act of a parent does not violate public policy.

The court explained that an in terrorem clause violates public policy if it violates constitutional, legislative, or judicial state law, or if it injures the public or is against the public good. The court found no public policy violation. The grandchildren “failed to present any cogent argument” of their interests outweighing a settlor’s ability to distribute property as he may chose. Nor did the clause deprive the grandchildren of any statutory or constitutional rights, as they had no particular right to any specific testamentary gift.

The court followed Wyoming precedent, upholding testator rights and the lack of legislation limiting that right. Wyoming has a well-established precedent protecting a testator’s absolute right to dispose of his property as he sees fit, even if the result is unjust to the testator’s children or relatives. The court has long protected this right by rejecting claims that in terrorem clauses are unenforceable as violative of public policy, even when a contest is made in good faith and with probable cause.

The court pointed to several cases in other jurisdictions enforcing the validity of in terrorem clauses against beneficiaries not participating in the challenge. Based on the supremacy of testator intent, these cases upheld in terrorem clauses, where one daughter’s challenge eliminated another daughter’s interests, where the wife’s challenge eliminated either or both sons’ interest, and where the fourth wife’s challenge eliminated interests of minor biological children from several prior marriages.

The court stated that it would not entertain arguments based on the Uniform Probate Code § 3-905, which provides that in terrorem clauses are unenforceable if probable cause exists for contesting the document. The court followed precedent rejecting a good faith defense to the enforcement of in terrorem clauses, and noted the legislature’s decision not to adopt the good faith exception of the Uniform Probate Code in Wyoming’s adoption of the Uniform Probate Code. Both in recounting the well-established precedent and concluding their discussion on the issue, the court noted that it would not change probate law by imposing policy the legislature implicitly rejected.