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In Terrorem clause upheld: may cost beneficiary $17 Million

In Shelton, Tamposi v. Tamposi, Jr. & Tamposi, a New Hampshire judge enforced the in terrorem clause of the decedent’s trust, which could result in the beneficiary being forced to disgorge nearly $17 Million in trust benefits received. In terrorem clauses are typically found in wills and are more commonly known as no-contest clauses. Such clauses seek to discourage legal challenges to the provisions of a decedent’s will, often leaving no share to the individual who challenges the will’s provisions.

Elizabeth Tamposi, one of twelve beneficiaries of the Sam A. Tamposi, Sr. trusts, had a history of bringing actions against her brothers, Sam, Jr. and Steven Tamposi, for allegedly breaching their fiduciary duties as investment directors of the trusts, but avoided the application of the in terrorem clause until her last unsuccessful attempt which began in 2007. Apparently this judge had seen enough, and ruled that the in terrorem clause had been violated.

In addition to the in terrorem clause, this case is fascinating not just for its notoriety but for the number of fiduciary issues it examines.

First, a little background: Samuel A. Tamposi, Sr. (Sam, Sr.) was a hugely successful real estate developer from New Hampshire. Sam, Sr. had six children including Sam, Jr., Betty and Steve. In his plans for his million dollar estate, Sam, Sr. established the SAT, Sr. Trust (trust) in 1992. The trust was amended multiple times after its creation—the pertinent provisions of which affirmed that the trustee may retain “real estate interests” as a substantial part or all of the trust property and named Sam, Jr. and Steve as investment directors. The trust was to be divided into 12 separate trusts for Sam, Sr.’s children and their children. Perhaps most importantly, the trust contained an in terrorem clause specifying that should any person challenge the trust’s validity and attempt to have it set aside or contest any part of it, that person would forfeit his right in the trust, with his or her share distributed “in the same manner as would have occurred had such person died prior to the date of execution of this trust.”

Upon Sam, Sr.’s death in 1995, his estate was valued at $20.5 million, consisting of various real estate holdings, limited partnerships and corporations (one of which was an interest in the Boston Red Sox). Sam, Jr. and Steve assumed responsibility as investment directors for the 12 subtrusts. Elizabeth was not pleased with her father’s selection of Sam Jr. and Steven, however and sought to have them removed or their actions curtailed. It’s a sad story of family discord, but one that has many lessons for practitioners which I shall examine in subsequent posts.

See “The Cementing of Family Bonds” Trusts & Estates.

Hat tip: Wills, Trusts, & Estates Prof Blog

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