October 29th, 2022 in Probate
When does a no contest clause apply? The current statute governing no-contest clauses contained in Probate Code Section 21310, et. seq. That section significantly limits the effect of a no contest clause. Even if the document contains a no-contest clause, it only can be enforced in three specific scenarios. Those scenarios are:
- A direct contest brought without probable cause;
- A pleading to challenge the transfer of property on the grounds that it was not the transferor’s property; and
- The filing of a creditor’s claim or the prosecution based on the creditor’s claim.
This only applies if the document you are challenging contains a no-contest clause. The effect of triggering a no contest clause is that you will be disinherited. If you are challenging a will or trust that does not have a no-contest clause, then you will not be subject to disinheritance if you challenge the trust or will and lose.
A direct contest means you are challenging the validity of the trust or will or an amendment that is based on at least one of the following:
- Lack of due execution;
- Lack of capacity;
- Menace; duress;
- Undue influence;
- Elder abuse;
- Revocation of a will or trust; or
- Disqualification of a beneficiary due to being a caregiver or drafter of the document.
A direct contest challenges the trust terms of the document directly. The most common scenario is challenging the will or trust based on the lack of capacity and undue influence when the document was executed. These lawsuits can potentially trigger the no-contest clause contained in the document.
Direct will and trust contests have a significant exception. The exception is known as the probable cause exception. If a direct contest is initiated and the facts support the determination a reasonable person believes that there is the likelihood that the lawsuit would be won after further inquiry and discovery, then the no-contest clause would not apply. Even if you lose, there can be an argument that probable cause existed and the no-contest clause should not be held against you. You could lose and not be disinherited.
No contests also apply to a pleading or challenge a transfer of property on the grounds that it was not the transferor’s property at the time of the transfer. Under Probate Code Section 850, the Probate Court has authority over property title disputes related to trusts or probate estates. A typical scenario is your parents transfer property to a trust. You claim that they did not own the property as it is yours and file a suit to void the transfer. If the trust has a no contest clause and specifies this type of action in the no contest clause, this is likely enough to trigger the no contest clause. For this type of suit, the probable cause exception does not apply. You would need to make a choice whether to pursue this suit or receive your beneficial interest in the trust or will.
If you are a beneficiary of an estate and the no contest clause specifies you cannot file a creditor’s claim, filing a creditors claim can result in the loss of your beneficial interest in the estate. If you have a potential claim against the estate, you have a beneficiary of the estate and the will has a no contest clause that prohibits filing a claim against the estate, you will need to make a decision whether to accept your beneficial interest or pursue your claim. Once again, the probable cause exception is not applicable in this type of situation. The law does allow the decedent to make you choose between your beneficial interest and your claim against the estate.
When there is a no contest clause in a will or trust, it must be carefully analyzed carefully. You have to read the document carefully and understand how the no contest clause will pertain to your situation.