Legal Memorandum: Forfeiture and Inter Vivos Trusts

Issue: What is a forfeiture and how is it applied to inter vivos trusts in New York?

Area of Law: Estate Planning & Probate
Keywords: Forfeiture; Inter vivos trusts; Settlor's wishes
Jurisdiction: New York
Cited Cases: 853 N.Y.S.2d 245; 484 N.Y.S.2d 776; 545 N.Y.S.2d 483; 695 N.Y.S.2d 274; 507 N.Y.S.2d 16; 476 N.Y.S.2d 763; 736 N.Y.S.2d 151; 854 N.Y.S.2d 293
Cited Statutes: Restatement (Second) of Trusts § 150, -108 and Restatement (Third) of Trusts § 34; Restatement (Third) of Trusts § 64; Restatement (Third) of Trusts § 69
Date: 07/01/2009

Generally, a “forfeiture” occurs when a party “loses some right, property, privilege or benefit in consequence of having done or omitted to do a certain act.”  Affiliated Capital v. Southwest, Inc., 862 S.W.2d 30, 33 (Tex. Ct. App. 1993); see DBT GmbH v. J.L. Min. Co., 544 F. Supp. 2d 364, 380-81 (S.D.N.Y. 2008).  As used in trust law, “forfeiture” is used most frequently to describe the consequence of a beneficiary’s failure to comply with the settlor’s wishes as set out in the terms of the trust.  See, e.g., Restatement (Second) of Trusts § 150 (entitled “Forfeiture for Alienation,” this provision addresses the validity of “[a] provision in the terms of a trust that the interest of a beneficiary shall terminate upon an attempt by him to transfer it”); 3 A.W. Scott, W.F. Fratcher, M.L. Ascher, Scott and Ascher on Trusts § 15.1 (entitled “Forfeiture Provisions”).  A forfeiture is not necessarily invalid simply because it is a forfeiture.  Id.

More specifically, forfeiture is a term sometimes used to refer to an “in terrorem” clause, a provision in the trust instrument that strips a beneficiary of some or all of her benefits if she takes or fails to take certain specified action.  See In re Estate of Stralem, 181 Misc. 2d 715, 695 N.Y.S.2d 274, 278 (Sur. Ct. 1999).  Frequently, the conduct subject to the in terrorem clause is the beneficiary’s legal action challenging the trustee.  That is, the trust document provides that the beneficiary is not entitled to […]

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