In our last post, we talked about the litigation between a woman, B.T., and her brothers. B.T. had complaints about how the brothers were managing the trust fund created by their father, a real estate developer with holdings in the northeast and Florida. In particular, she argued that the "in terrorem" or no contest clause in the trust gave the brothers too much power. Any beneficiary's challenge to the trust's administration, she said, would result in the beneficiary losing his or her entire inheritance.

B.T. pursued her claim in two different courts: probate court in New Hampshire and superior court in Massachusetts. The New Hampshire court said her challenge violated the no contest clause and ordered her to pay court costs for all parties as well as to reimburse the trust for all money received since she filed the claim. The total could be as much as $17 million.

In its ruling, the probate court seemed to rely on the brothers' view of the situation. When her father announced his intentions to put the brothers in charge of the trust assets, according to their witnesses, B.T. objected and has been objecting since. The brothers cited their father's low opinion of B.T.'s financial management skills and pointed out that they had more than quintupled the trust's assets in 13 years. They also indicated that B.T. and her children had received more than $9 million from her trust and the generation-skipping trust.

With all this in mind, as well as the long history of litigation between the parties, the court turned to the no contest clause as its justification for imposing legal fees and reimbursement on B.T. Through their attorney, the brothers declared a victory for their father's intent when he created the trusts.

The Massachusetts court, though, did not apply the no contest clause so strictly. The initial claim, regarding the sale of some trust assets, became moot before the matter went to trial. B.T. and her brothers, however, sued one another for fees, each claiming the other had acted in bad faith. The court thought the siblings had all dragged out the litigation unnecessarily, but, importantly, the judge stated that each party had legitimate goals in pursuing the claim -- and, therefore, the no contest clause would not apply.

This was not the first lawsuit between the siblings, and B.T. had won her point in one of the earlier disputes. In 2000, a dispute over a proposal to transfer assets from the sibling trusts to the generation-skipping trusts was settled out of court. A few months later, B.T. and another brother sued, claiming the brothers in charge of the funds and the trustees had breached their fiduciary duties. The suit ultimately went to private mediation, where the brothers and sisters eventually forged an agreement. B.T. and her brother were each granted their own trustees, independent of the trustees appointed by their father, and the two brothers were relieved of managing all but a handful of investments.

Unfortunately, it was a dispute over one of those assets that became the next bone of contention among the beneficiaries and led to the (potential) $17 million  judgment. But B.T. plans to appeal, so the litigation will continue, and the New Hampshire Superior Court may have yet another take on the no contest clause and the long, bitter legal battles between sister and brothers.

Resource: The Telegraph (Nashua, NH) "Tamposi Battle Drags On With Millions at Stake" 9/26/10