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What is a No-Contest Clause?
A no-contest clause is a provision in a will or trust that, if enforced, would penalize a beneficiary if the beneficiary files a contest with the probate court. In other words, a no-contest clause provides that a beneficiary will lose his or her inheritance in the estate plan if he or she seeks to invalidate or impair the estate plan documents or any of its provisions.
Why Do Estate Plan Documents Contain No-Contest Clauses?
A no-contest clause is designed to discourage litigation by an unhappy beneficiary. The no-contest clause requires the beneficiary to choose between accepting the gift provided in the estate plan and pursuing a claim that is a contest and perhaps possibly losing his or her entire inheritance.
What Is The Current California Law on No-Contest Clauses?
The California law on no-contest clauses changed dramatically in 2010. A discussion on the former no-contest clauses and former accompanying case law is beyond the scope of this blog. This blog will discuss the current California law on no-contest clauses (i.e., instruments that became irrevocable on or after January 1, 2010).
Generally speaking, no-contest clauses are governed by three different enforcement statutes. The applicable statutes will depend on the date that the instrument at issue became irrevocable (i.e., on the death of the creator of the will or trust instrument).
Wills or trusts that became irrevocable on or after January 1, 2010, are governed by California Probate Code §§21310-21315. Under the current law, no-contest clauses are greatly restricted. In fact, a no-contest clause “shall only be enforced” against contests that are within the three types:
a. Direct contests brought without probable cause. A direct contest means a contest that alleges the invalidity of a protected instrument based either on fraud, lack of due execution, lack of capacity, menace, duress, fraud, or undue influence… Probable cause 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. California Probate Code §21311(b).
b. Challenges to certain property transfers if expressly barred by the no-contest clause. A no-contest clause may be enforced against 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, but only if the no-contest clause expressly provides for that application. California Probate Code §21311(a)(2).
c. Filing or prosecution of creditor’s claim if expressly barred by the no-contest clause. A no-contest clause may be enforced against the filing of a creditor’s claim or prosecution of an action based on the claim, but only if the no-contest clause expressly provides for that application.
If an instrument contains a no-contest clause, a beneficiary and his or her attorney should review the penalty for triggering the no-contest clause. If the penalty is insubstantial (e.g. beneficiary will receive a $2,000 inheritance) and the chance of recovery is great (e.g., a $1 million inheritance), the beneficiary may want to assume this risk and contest the instrument. On the other hand, if the inheritance is substantial (e.g., a $1 million inheritance) and the chances of prevailing on the contest is low to moderate, then the beneficiary has a tough decision to make; take the money or perhaps lose it all if he or she contests. It will of course depend on the facts and circumstances of each case.
Matthew W. Harris is a Marin County estate planning, conservatorship, and probate attorney located in San Rafael, California. For more information on estate planning, conservatorship or probate, please contact The Law Office of Matthew W. Harris today at (415) 521-5610 for a free consultation.
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