2890 N. Main Street, Suite 206 • Walnut Creek, CA 94597

No Contest Clauses May Not Apply to Trust or Will Amendments

Mary read the trust document again. “This can’t be right,” she said, shaking her head. “Why would Grandpa change the terms of his trust and leave such a large amount of money to this religious group? I’ve never even heard of this organization. Our kids were supposed to benefit from his trust. He always made that clear. This makes no sense.”

Her husband, Simon, nodded. “Every Christmas, he always said the same thing. ‘I want my great-grandchildren to benefit from my success. That’s my legacy. I want them to enjoy the bounty from all of my hard work.’ He never mentioned that group.”

“Well, according to this new trust amendment, Grandpa all but disinherited his great-grandchildren.” Mary looked at her husband, a concerned expression on her face. “We were relying on the money to fund their college education. Do you think he was somehow taken advantage of? I mean, I know Sarah had to change his phone number multiple times because so many scammers were contacting him, asking for money. Maybe somehow, this religious group got their hooks into him and convinced him to change his trust.”

Simon sighed. “But the original trust document has a no contest clause. That means if we challenge the trust on behalf of Jane and Jerry, and lose, our kids would have no inheritance. What then? Sure, now they haven’t been left with much, but it’s something. Maybe we should just leave it be.”

“And permit some shady group to steal all of Grandpa’s money? I don’t think so. I think these people are scammers. We need to protect our children and Grandpa’s legacy. That’s what he would have wanted.” Mary pointed at the document. “Besides, the amended trust has no such clause. Surely that’s in our favor.”

Simon shook his head. “I think we need to talk to a lawyer first and determine whether we have any rights at all. After all, it was Grandpa’s money. He was entitled to do what he wanted with it.”

Mary frowned. “I just want to make sure that these people did not steal his money out from under him. Grandpa wasn’t all there when he got older. He could easily have fallen prey to scammers. Besides, what do we have to lose? A pittance. But if we win, the kids stand to gain quite a bit.”

A no contest clause in a will or trust penalizes a beneficiary named in that document for challenging its terms. If the challenger loses, they are no longer entitled to receive the gift or inheritance specified in the document. The clause is intended to prevent frivolous challenges and protect the decedent’s vision for the distribution of their assets.

Under California law, a no contest clause is enforced only against an unsuccessful direct contest or a lawsuit that challenges the validity of a protected instrument on specific grounds, such as fraud, undue influence, or mental incapacity. A protected instrument includes the document that contains the no contest clause, as well as any other documents referred to in that written instrument.

While the most common grounds for challenging a will or trust are fraud, undue influence, and/or lack of mental capacity, direct contests may also include claims that a document has been forged, improperly executed, revoked, enriches beneficiaries disqualified by law, or involves property not owned by the decedent at the time of death.

A no contest clause doesn’t not bar a beneficiary to a will or trust from suing. Anyone can challenge a will or trust for any reason. However, under California law, a no contest clause will be enforced if a beneficiary files a direct contest—as defined above–and loses, and the court finds that the lawsuit was not filed for probable cause. According to the California Probate Code, “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.”

When a challenge concerns an amendment to a trust, different rules may apply. Courts have ruled that when a no contest clause is contained in the original trust document, but not in the amendment, the no contest clause does not apply. In essence, the no contest clause applies only to the document in which it is specifically included.

It should be noted that in many cases, no contest clauses are effective only if the potential challenger has a substantial gift that they might lose. In addition, no contest clauses are enforced only after the challenger loses at trial. Often, an effort is made to settle a potential challenge before it reaches trial to avoid undue expense or delay. That prevents the entire document from being invalidated.

[Ad] Do you need help with your California estate planning now? We can help. Together our Absolute Trust Counsel team will take a look at your situation and your specific needs to develop a strategic plan to help protect you and your loved ones. Here’s a link to schedule your free discovery today > https://absolutetrustcounsel.com/scheduling/.

Our Absolute Trust Counsel team would love to offer all of you access to ATC’s Incapacity Planning resource page on https://absolutetrustcounsel.com/incapacity-planning/ We’ve collected our top planning information all in one place so listeners can find videos, guidebooks, blog posts, a host of information with tips and strategies on implementing, planning, and protecting themselves and their loved ones.

 
2890 N. Main Street, Suite 206
Walnut Creek, CA 94597

925.943.2740

Absolute Trust Counsel © 2022 All rights reserved. Terms of Use and Privacy Policy