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A no-contest clause, also called an in terrorem clause, is a clause in a legal document, such as a contract or a will, that is designed to threaten someone, usually with litigation or criminal prosecution, into acting, refraining from action, or ceasing to act. The phrase is typically used to refer to a clause in a will that threatens to disinherit a beneficiary of the will if that beneficiary challenges the terms of the will in court. Many states in the United States allow for a Will to have a no contest clause, so long as the person challenging the will doesn't have probable cause to do so.
No-contest clause in wills
A provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings.—UPC §§ 2-517 and 3‑905 
Some states allow for "living probate" and "ante mortem" probate, which are statutory provisions which authorize testators to institute an adversary proceeding during their life to declare the validity of the will, in order to avoid later will contests.
No-contest clauses by state
In California, no-contest clauses are of limited effect, and will divest a party that unsuccessfully contests a will containing such a clause only if the Court determines that the party brought the action without probable cause. Probate Code §§ 21310–21315. These statutes, which comprise California's statutory scheme governing the enforceability of no-contest clauses, became effective January 1, 2010. As of that date, the predecessor statutes are repealed.
In Florida no-contest clauses in wills are specifically unenforceable, irrespective of probable cause, pursuant to statute. See Fla. Stat. 732.517 (2009) which states:
A provision in a will purporting to penalize any interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable.
Massachusetts General Laws allow for Penalty Clause for Contest language in wills. See M.G.L. Ch. 190B, Art. II, Sec. 2-517.
A provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is enforceable.
Nevada law specifically directs the court to enforce no-contest clauses. These statutes recognize that a beneficiary may, without penalty, seek enforcement of the will or trust, seek a judicial ruling as to the meaning of the will or trust. The statutes also recognize an exception where legal action challenging the validity of the document is "instituted in good faith and based on probable cause that would have led a reasonable person, properly informed and advised, to conclude that there was a substantial likelihood that the trust or other trust-related instrument was invalid."
New York has rejected the "probable cause" defense to enforcement of such clauses. Such clauses are given full effect upon challenge. Some exceptions apply, e.g. election against the will by a minor, contest on ground of forgery or revocation by later Will.
N.Y. EPTL specifically states:
A condition, designed to prevent a disposition from taking effect in case the will is contested by the beneficiary, is operative despite the presence or absence of probable cause for such contest, subject to [exceptions]—N.Y. EPTL § 3-3.5 
Texas allows for a no-contest clause to be challenged for just cause and provided the action to challenge was made in good faith (Texas Probate Code, Chapter IV, Section 64; Texas Estates Code Sec. 254.005). 
- Cornell Law School website page on Uniform Probate Code. Accessed October 5, 2009.
- Uniform Probate Code (UPC) § 2-517. Penalty Clause for Contest, replicated at § 3‑905. Penalty Clause for Contest. Both found at University of Pennsylvania Law School website page on Uniform Probate Code. Accessed October 5, 2009.
- Fla. Stat. 732.517 (2009).
- See NRS 137.005 as to wills and NRS 163.00195 as to trusts.
- N.Y. EPTL § 3-3.5 Conditions qualifying dispositions; conditions against contest; limitations thereon, found at New York state Assembly website, go to EPT Estates, Powers & Trusts. Accessed October 5, 2009.