Penalty Clause
Definition
An unenforceable contract provision that specifies a punishment for a breach. In the wills and trusts context, a penalty clause, also known as a no-contest clause, penalizes an interested party for contesting the will or trust, usually by barring that person from inheriting or taking under the will or trust. Many states prohibit penalty clauses to avoid discouraging interested parties from challenging the validity of suspect wills and trusts.