Suit against trustee for breach of duty is not a contest that triggers forfeiture clause.
Virginia and William Steineker were married from 1974 until Virginia’s death in 2000. Virginia had four children from a prior marriage. Virginia’s estate plan included a living trust that established a credit shelter trust and two separate marital trusts. The three trusts had a combined value of approximately $5.7 million. William was the lifetime beneficiary of the trusts and Virginia’s children were the remainder beneficiaries. Under the terms of at least one of the marital trusts, William had the right to withdraw 5% of the trust principal annually. William also received the net income from the credit shelter trust. The trusts included a no-contest clause that would be triggered by a beneficiary contesting the validity of the trust.
William died six years later in 2006. National City Bank served as trustee of the three trusts held for William’s benefit and it also served as executor of William’s estate until it resigned and was replaced as executor by Commonwealth Bank & Trust Company in 2009.
Following William’s death, three of Virginia’s children filed claims with William’s estate and National City Bank alleging that National City Bank distributed to William more of the trust assets than he was entitled to receive. In response, National City Bank sued seeking a determination whether the children’s claims triggered the no-contest clause. The children sued on their claims in Kentucky circuit court. Commonwealth became a substitute party to the litigation following its replacement of National City Bank as executor.
The trial court held that the children’s action against William’s estate did not violate the no-contest clause. On appeal, the Kentucky Court of Appeals affirmed the trial court on the grounds that: (1) the clause was enforceable but the issue was the scope of the clause; (2) the children’s claims were not an attempt to invalidate the trust terms, but rather were seeking an interpretation of the trust and a determination whether National City Bank acted improperly under the trust terms; and (3) therefore, the no-contest clause was not violated as it did not apply to the children’s claims.