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Does a forfeiture clause in your will protect your business?

On Behalf of | Jul 15, 2022 | Estate Planning

If you own a business and decide to pass it on via your will, it’s because you care what happens to that business once you’re gone. You’re probably very particular about who you’d choose to be the business’ beneficiary, to ensure it continues to succeed. You may even include a forfeiture clause, for an additional layer of protection, but will it work?

What is a forfeiture clause?

Also known as a no-contest or in terrorem clause, a forfeiture provision is included in a will to dissuade challenges to that will. The clause provides that, should any beneficiary choose to bring a challenge, that beneficiary will automatically be disinherited. As a result, the beneficiary risks everything.

Such a provision could be extremely useful for the business owner looking to protect their business when they pass away. Presumably, they are concerned that others may want the business for themselves or disagree with who you chose to leave it to. And at face value, a forfeiture clause would appear to discourage potential challengers from upending your choice.

However, there are limitations

Texas Estates Code Section 254.005 specifically provides that forfeiture clauses can be enforced. But they won’t be in every circumstance. For one thing, the clauses themselves are strictly construed, which means they need to be drafted clearly so that the desired effect is plain. Any ambiguity in the clause is likely to result in nonenforcement.

Secondly, even if the clause is clear, courts will not enforce it if the challenger has a legitimate cause to bring the challenge and does so in good faith. So, while the provision may be effective against frivolous challenges, it likely won’t be if the challenge is well-founded.

There may very well be a place in your will for a forfeiture clause. To make sure it does what you want it to do, speak to a professional who is experienced in Texas estate planning and probate law.