The law presumes that everyone wants that their estate planning documents to be respected. A “no-contest clause” (also appropriately called an “interrorem” clause) when properly used is intended to discourage unhappy beneficiaries from contesting the terms of a will, a trust or other protected instrument (e.g., a designated death beneficiary form). A beneficiary who violates the “no-contest” clause risks losing their entire inheritance.
In California, the recognized purpose of a no-contest clause is to uphold the true wishes of the decedent and to discourage litigation. [California’s “no-contest” laws are codified in Sections 21310 to 21315 of the Probate Code. Generally speaking these rules apply to all instruments which became irrevocable after January 1, 2001. Death makes living trusts and wills irrevocable.]
What is a contest for purposes of California’s no-contest law? Section 21310 of the Probate Code recognizes three types of contests that can be the subject of a “no-contest” clause: (1) a direct contest that is brought without probable cause; (2) a pleading to challenge a transfer of property on the grounds that it was not the transferor’s property at the time of the transfer; and (3) the filing of a creditor’s claim or prosecution of an action based on it.
The second and third types of contests only apply if the no-contest clause expressly includes them as no-contest violations. Moreover, the “probable cause” defense does not apply to these no-contest violations.
A “direct contest” is one that alleges the invalidity of a protected instrument based on any of the following six grounds: (1) forgery; (2) lack of due execution; (3) lack of capacity; (4) menace, duress, fraud, or undue influence; (5) revocation; or (6) disqualification of a beneficiary (Section 21310(b) Probate Code).
But only a direct contest brought without probable Cause can trigger the no-contest clause. Probable cause for purposes of the no-contest clause exists if, “… at the time of filing a contest, the facts known to the contestant would cause a reasonable person to believe that there is a reasonable likelihood that the requested relief will be granted after an opportunity for further investigation or discovery (Section 21311 Probate Code).” The law does not want to prevent direct contests that are meritorious.
For example, take a trust beneficiary who petitions to invalidate a deceased settlor’s trust arguing that the settlor had diminished capacity when he signed the trust due to his Alzheimer’s Disease. The no-contest clause only applies if the Court later finds that a reasonable person when filing the petition would not have reasonably expected to win even after further factual investigation or discovery.
What is a “protected instrument”? A protected instrument is the legal instrument — usually a will or trust – that contains the no-contest clause and any other document that is identified in the instrument and is in existence when the no-contest instrument is signed. Thus, subsequently signed instruments, such as trust amendments and updated death beneficiary forms must either expressly incorporate the no-contest clause by reference or else republish the no-contest clause to be protected.
A no-contest clause only deters a beneficiary who has something to lose under the protected instrument. It is a carrot and stick approach to buying peace. An already disinherited heir has nothing to lose, except for their legal fees and costs.
A no-contest clause is not used in every will or trust. Doing so can have unintended and unforeseen adverse results. A no-contest clause should be considered when dividing one’s estate unevenly amongst one’s heirs, such as where one child receives less than the other children or nothing. It should also be considered when one’s spouse is to receive more or less than her share as an heir.
The foregoing is not legal advice. Anyone confronting a no-contest clause legal issue should consult a qualified attorney for guidance.
Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.