In Ferguson v. Ferguson, 473 P.3d 363 (Idaho 2020), the Supreme Court of Idaho relied on the Restatement of the Law Third, Property (Wills and Other Donative Transfers), and the Restatement of the Law Third, Trusts, in holding, as a matter of first impression, that no-contest provisions were generally enforceable in Idaho trust instruments, subject to various common-law limitations.
In that case, the petitioner was originally excluded as a beneficiary of his parents’ trust (“Original Trust”) but, after his father’s death, his mother, through her will, exercised a power of appointment granted to her in the Original Trust to name the petitioner as a beneficiary of one of the three subtrusts of the Original Trust (“Survivor’s Trust”), which was made up of his mother’s separate property and any interest of the community property held in the Original Trust upon his father’s death. After his mother’s death, the petitioner filed a petition in Idaho state court against his three siblings and his parents’ long-time accountant, who were successor trustees of the trusts, seeking financial records from the sub-trusts and the Original Trust to determine whether he would receive his full share of the Survivor’s Trust. The successor trustees responded by providing an inventory and interim accounting of the Survivor’s Trust but refusing to provide any information or accounting from before the mother’s death. While this matter was pending, the petitioner filed a claim in Arizona probate court against his mother’s estate, alleging that he was “a creditor of her estate because [his mother], as trustee of the Survivor’s Trust, breached various fiduciary duties owed to him.” After the petitioner’s three siblings, acting this time as co-personal representatives of the mother’s estate, disallowed his claim, the petitioner filed a Petition for Allowance of Claim and for Stay in the probate court, seeking “to preserve his rights from being barred by the statute of limitations while his entitlement to the Trust’s financial records was litigated” in this case.
The magistrate court in the Idaho proceedings denied in part and granted in part the successor trustees’ motion for summary judgment to enforce the forfeiture provision in the Original Trust, finding that the petitioner’s Arizona petition “did not trigger the forfeiture provision because it was attempting to ascertain the full extent of [the petitioner’s] interest rather than contest the validity of the Original Trust,” but that the petitioner “did not become a beneficiary of the Survivor’s Trust until after [his mother’s] death, and as such, he was not entitled to any Survivor’s Trust records from before [his mother’s] death.” Reversing in part, the state district court held that, while the petitioner became a beneficiary of the Survivor’s Trust when his mother exercised the power of appointment in her will, he forfeited his interest in the Survivor’s Trust because he lacked probable cause to bring his Arizona petition. The state court reasoned that the mother did not owe the petitioner any fiduciary duties and that “it would not be reasonable for [him] to conclude he was entitled to an accounting from before [her] death or that she breached any fiduciary duties,” because she was the sole trustee of the Survivor’s Trust, which granted her broad discretion to distribute and use its principal during her lifetime for “any reason.”
Reversing and remanding to the district court with instructions to remand to the magistrate court, the Supreme Court of Idaho “adopt[ed] the majority position identified in the Restatement [of the Law Third, Trusts § 96, Comment e],” and held, inter alia, “that no-contest provisions are generally enforceable in Idaho trust instruments” but “their enforceability is subject to various common law limitations.” Relying on § 96, Comment e, the court reasoned that no-contest clauses were valid and generally enforceable in most jurisdictions. Additionally, citing Restatement of the Law Third, Property (Wills and Other Donative Transfers) § 8.5, Comment i, the court noted that “the same rules and principles logically apply to trusts” as they do to wills, and Idaho had “codified common law limitations on the enforceability of no-contest provisions in wills when it adopted the Uniform Probate Code.” The court observed that, under § 8.5, and Comments b and c thereto, “no-contest provisions [were] enforceable ‘unless probable cause existed for instituting the proceedings.’” Furthermore, “[n]o-contest provisions ‘shall not be enforced to the extent that doing so would interfere with the enforcement or proper administration of the trust,’” (quoting Restatement of the Law Third, Trusts § 96(2)), and that “[t]he mere filing of a paper that is ‘intended solely to procure time to ascertain the facts upon which the decision to institute a proceeding must rest should not be construed to constitute the institution of an action to contest,’” (quoting Restatement of the Law Third, Property (Wills and Other Donative Transfers) § 8.5, Comment d).
The court determined that the district court erred in enforcing the forfeiture provision against the petitioner before first addressing whether the trustees breached their fiduciary duties in administering the Survivor’s Trust. The court explained that the trustees sought to apply the forfeiture provision to remove the petitioner as a beneficiary because he requested records relating to the manner in which the Survivor’s Trust had been administered, and “[s]uch a result [was] inconsistent with the proper administration of the Survivor’s Trust under Idaho law, and interfere[d] with [the petitioner’s] rights as a beneficiary in the Survivor’s Trust.” The court rejected the trustees’ argument that the forfeiture provision could not interfere with the trust administration because the petitioner was not entitled to the records, given that the mother did not owe the petitioner any fiduciary duties. The court clarified that, while the mother had “virtually unlimited discretion” in using the trust assets, she did owe some limited duties to the petitioner under Restatement of the Law Third, Trusts §§ 50 and 76, and her discretion “ha[d] no bearing on the Successor Trustees’ current fiduciary duties” to the trust’s beneficiaries. In examining the trustees’ argument that the forfeiture provision was enforceable because the petitioner lacked probable cause in filing his creditor’s claim, the court explained that “Idaho has never considered whether lack of probable cause is a requirement to enforce a no-contest provision.” The court declined to consider whether the petitioner had probable cause to bring his petition in probate court at this stage, noting that, on remand, “if [the petitioner was] provided records that allow[ed] him to determine whether he received his full share of the Survivor’s Trust, and, within a reasonable time, [did] not withdraw his Arizona petition, the trial court [could] take up the issue of whether [he] ha[d] probable cause to pursue th[at] action.”