What is a no-contest clause and why is it added to a will or trust?
In Latin it is known as an "in terrorem" clause, which means that the clause is inserted as a threat or warning to those beneficiaries of a will or trust who would seek to challenge the estate plan after death. If those beneficiaries wish to challenge the validity of a trust in court and do not have “probable cause” the threat they face is complete disinheritance.
Let’s give an example regarding a recent dramatic case in San Francisco. An article published in California Trusts and Estates Quarterly revealed that in a bid to challenge the Revocable Trust of Irene M. Lieberman, two of her children lost $10 million that they were due to inherit. The San Francisco County Superior Court ruled that they did not have probable cause to bring their lawsuit. Such a dramatic result is unusual. One would hope that an experienced trust attorney would steer his or her client away from pursuing a case without sufficient probable cause.
Now, the important operating term here is “probable cause”. Just what is probable cause? What is the legal definition? California Probate Code section 21311 (b) defines probable cause as “facts known to the contestant [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 or discovery.”
In other words, beneficiaries who contest a trust in court with the belief that the facts known to them are legitimate and can show they are right can be said to have probable cause. If they prevail in the case and show the court that indeed the facts they have presented are valid, the no contest clause will not be activated. That being said, it is also possible for beneficiaries to lose their case in court but still be found to have probable cause so that the no-contest clause is not applicable.
In most cases, the court will first order the parties to mediation in hopes they can come to agreement amongst themselves (and their attorneys). I litigate a significant amount of trust matters, and I have never had a client be disinherited due to lack of probable cause (or any other reason). The other party may threaten this, but a competent and experienced trust litigation attorney can guide a beneficiary as to whether or not the threat of disinheritance has teeth.
Let’s give an example where a trust could be successfully challenged without triggering the no-contest clause. Suppose that a trust has been set up leaving assets equally to two children. One of the children is a caregiver for the elderly parent and persuades the parent (who has dementia) to change the trust, leaving only 25% to the other sibling and the other 75% to the caregiving sibling. Suppose also that child uses trust funds for personal expenses while the parent is still alive. In this scenario, the other sibling can bring a lawsuit challenging the trust upon the decedent’s passing, charging undue influence and financial elder abuse. Because the parent changed the trust when they lacked mental capacity, unfairly benefitting one child, most courts would agree probable cause exists.
There are other types of direct contests which if presented with proper factual and legal evidence can also show probable cause. Fraud, forgery, menace, or lack of a signature on a document are all examples.
There are two types of claims, however, that, in some cases, can trigger a no-contest clause.:
Creditor’s claims - If a beneficiary is owed money by the estate and pursues a claim for payment it may trigger the no-contest clause even though the claim for payment is legitimate. The language in the no-contest clause may be written in such a way to specify that bringing a claim will result in disinheritance. The bottom line? Consult with a Trust attorney before filing a creditor claim against a Trust.
Challenges to property ownership - In situations where there is community property between spouses there may arise an issue when it is not clear who owns the property in the estate, leading to a community property claim. In this case, it essential to have an experienced Trust and Estate attorney thoroughly review all estate planning documents.
As you can see, deciding whether or not to contest a trust (or trust amendment) that includes a no-contest clause must be done carefully with the advice of an attorney who specializes in trust and estate litigation. It’s also important for the attorney you choose to be very familiar with the judge in the county you will file your lawsuit. Each judge and his or her viewpoints on the law will affect the outcome of your case.
Likewise, care must be taken when executing estate planning documents that contain a no contest clause. There are many legal ramifications when it comes to wording a trust document correctly and many avenues to explore to ensure familial harmony.
Expert legal advice can spell the difference between success and disinheritance.