I have had requests to explain the EFFECT of the new trust law....not just what it says, but what it means. Ahem. So this is my attempt, but with typical attorney disclaimer. No one really knows what a law means until it is tried, tested, and interpreted by courts.....so here goes.
Nearly all trusts and wills have a provision called a "no-contest clause" by which an heir who brings a lawsuit to challenge the trust/will could end up taking no share of the estate whatsoever. Such a clause was valid except for specific challenges, like fraud or mishandling of distribution, and the like. This is also called a "penalty clause." For many years, heirs who wanted to challenge estate documents could first file a court proceeding to obtain a declaratory order from the court as to whether the challenge would be considered a contest resulting in no inheritance. This preliminary filing ("safe harbor action") was not a contest.
The new law basically provides that a contest may NOT result in disinheritance IF the contestant has evidence amounting to probable cause that the claims made are true--and the claims must be within one of the areas identified in the statute (fraud, etc.). The existence of "probable cause" evidence does NOT mean "actual" evidence, so if the heir loses the action and the estate wins, the heir might still inherit as long as the court finds that the heir had probable cause to bring the action. Any no-contest clause that provides differently may be ineffective against this new law--the law takes precedence over contrary provisions.
Of even more importance, the new law allows two enforceable no-contest provisions BUT ONLY IF the trust/will actually expressly provides for them. 1) One will uphold certain property transfers against challenge. 2) The other prohibits a creditor from bringing a court action to challenge the estate plan.
These two no-contest provisions reach beyond what most trusts/wills currently provide because they govern persons other than just heirs of the decedent. In addition, an express statement in the no-contest clause that refers to beneficiary designations in other instruments (such as pension plans or life insurance policies) can bring these other intruments under the coverage of the no-contest clause. Again, this is not currently provided in most trusts/wills. There must be an express statement in the no-contest clause to put these provisions into effect.
At this time, the new law is being analyzed and interpreted, so that its full import is not yet clear. However, it will apply regardless of what your estate documents currently state. In other words, the no-contest clause in your documents will not control whether an heir may be disinherited for challenging the plan--the California law will control and it requires only "probable cause"--and to take advantage of the added provisions re property transfers and creditors, your documents MUST contain express provisions.
The recommended course of action is to contact your estate attorney.
