San Diego Estate Planning Lawyer Blog
A “no-contest clause” is a common California estate planning device used in wills and trusts to discourage litigation over a person’s estate. The basic idea is simple: If a beneficiary named in a will or trust files a lawsuit challenging that document’s validity, that beneficiary is effectively disinherited. What’s not so simple, however, is California’s approach to no-contest clauses. Such clauses have long been recognized under the common law in California, but the state legislature has adopted numerous restrictions on their enforcement over the years.
The most recent law, which took effect in 2010, limits enforcement of no-contest clauses to three types of claims: (1) “A direct contest that is brought without probable cause”; (2) a creditor’s claim; and (3) a beneficiary’s claim to trust property (also known as a “forced election”). These latter two case types must be expressly mentioned in the no-contest clause in order to have effect.
Prior to 2010, California law allowed beneficiaries to file “safe harbor” proceedings, which allowed them access to the courts without invoking a no-contest clause. The 2010 law eliminated such proceedings. But what about safe harbor applications still pending as of 2010? Recently, the California Supreme Court considered just such a case.
Donkin v. Donkin
Rodney and Mary Donkin created a revocable living trust in 1988. The trust included a no-contest clause that would disinherit any beneficiary “legally challenge[d] this Trust.” The trust was amended and republished with the same no-contest clause in 2002.
Rodney Donkin died in 2002. At this point, the trust was divided into a Survivor’s Trust-representing Mary Donkin’s assets-and two decedent’s trusts, representing the late Rodney Donkin’s assets. One of the decedent’s trusts became irrevocable upon Rodney Donkin’s death, but the other two could be amended or revoked at Mary Donkin’s discretion. Shortly before her own death in 2005, Mary Donkin made a second amendment to the two remaining revocable trusts. This included a re-worded no-contest clause that disinherited any beneficiary who “directly or indirectly” contested any provision of the trust.
At the time of Mary Donkin’s death, California law still permitted safe harbor applications. Two of Donkin’s daughters, both named beneficiaries of the trust, invoked the safe harbor and filed a lawsuit against the successor trustees, seeking an accounting of the estate’s assets, removal of the successor trustees for malfeasance, and a distribution of the trust’s assets. This application was still pending in 2010 when the law changed.
The probate court, applying the former law, found the daughters’ claims did not constitute a “contest,” as defined by the trust. The trustees appealed. The Court of Appeals, still applying the pre-2010 law, agreed with the trustees that the daughters, in fact, were making a contest, thereby invoking the no-contest clause. The daughters appealed to the Supreme Court.
The Supreme Court unanimously held that the lower courts should have applied the 2010 law in assessing the merits of the no-contest provision. The current law was “presumptively applicable” because the legislature retroactively applied it to all trusts that became irrevocable after January 1, 2001. As explained above, the new law specifies only three categories where a no-contest clause is enforceable. The Supreme Court said the daughters’ lawsuit did not fall into any of those categories, therefore the no-contest clause could not be applied to them. (The Court added that, even under the pre-2010 safe harbor law, their claims didn’t constitute a “contest” either.)
It is important you consult with an experienced California estate planning attorney who can ensure that your trust complies with the most recent changes in the law. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.