What is a No-Contest Provision?
It is a common provision in trusts and wills that sets up a penalty if, in certain situations, a beneficiary brings a court action (“a pleading”) to “contest” trust or will provisions. The provision is governed by Probate Code Sections 21310 - 21315.
For example, if a son does not like the gift given to him in his father’s trust, he might file a court action contesting the trust. That action may be allowed in certain situations, such as when there is clear evidence of fraud. However, if there are no grounds for the contest, the son may be entirely disinherited, losing even the gift given. Hence, the penalty is disinheritance.What is the new law?
Effective January 1, 2010, a no-contest clause can be enforced against only three types of contests:
1. A “direct contest” brought without “probable cause.”
NOTE: The clause is NOT required to prohibit these types of contests expressly.2. A pleading that challenges a property transfer on grounds that the property did not belong to the person making the transfer at the time it was made, PROVIDED the no-contest clause expressly prohibits this type of contest.
3. The filing of a creditor’s claim or prosecution of an action based on it, PROVIDED the no-contest clause expressly prohibits this type of contest.
A no-contest clause that applies a penalty in any other circumstances may be invalid, unless otherwise permitted by case law. The statute will apply regardless of contrary provision in the instrument. It applies to all instruments regardless of when executed, that become or have become irrevocable after January 1, 2001, but not before that date. (Revocable trusts typically become irrevocable on the death of the trustor.)
A few clarifying definitions
To understand the application of a no-contest clause under the new law, it is important to know these definitions:
Contest: A pleading filed with the court by a beneficiary that would result in a penalty under a no-contest clause if enforced.
Pleading: A petition, complaint, cross-complaint, objection, answer, response, or claim.
Direct Contest: A contest that alleges that a protected instrument, or any of its terms, is invalid based on grounds of forgery, lack of due execution, lack of the maker’s capacity, menace, duress, fraud, undue influence, revocation pursuant to statute or the instrument terms, statutory disqualification of a beneficiary.
Probable Cause: It exists if, when the contest is filed, the contestant knows facts that 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 and discovery.
Protected instrument: An instrument containing a no-contest clause (such as a trust or will) and another instrument expressly identified in the no-contest clause as being governed by it, provided the first instrument exists when the second is executed. For example, the beneficiary designation in a life insurance policy, qualified pension trust, or IRA could be covered by the no-contest clause in a trust or will if specifically referenced in the clause.
Do you need to amend your trust/will?
Most likely. It is highly recommended that you contact your estate attorney for a review of your documents to determine whether the new law applies.
