June 22, 2009 Volume 1, No. 4
This edition of Currents is from Dean I. Friedman, Esq., a senior partner of both our Tax and Estate Planning Departments. Please contact Dean at email@example.com to inquire about the subject matter of this edition.
California's 2010 No-Contest Law
What is a No-Contest Clause?
Most estate planning instruments (such as wills and living trusts) include a no-contest clause as a matter of prudent drafting. The no-contest clause is derived from the common law of decedent's estates. In more recent years, the rules for no-contest clauses have been embodied in the California Probate Code.
A no-contest clause is an express provision included in a will or trust which prevents someone designated as a beneficiary under that instrument from receiving an inheritance if he or she unsuccessfully challenges or "contests" all or part of the will or trust. In other words, the designated beneficiary forfeits all that he or she would receive under the terms of the will or trust if a failed challenge is made.
The no-contest clause is distinguished from a "disinheritance clause" (recommended to be included as a separate provision of a will or trust). The disinheritance clause normally concerns only a testator's or settlor's spouse or children. It may preclude any of these persons from receiving any property under the will or trust, if that is intended. The disinheritance clause prevents challenges by such persons on the basis of otherwise being "omitted" (see California Probate Code sections 21610 and 21620). The no-contest clause is more broadly directed against all designated beneficiaries under an instrument regardless of category or description.
Oftentimes, the no-contest clause also precludes the contesting beneficiary's children and younger issue from taking any interest in the decedent's estate. This is an important element of a well-prepared no-contest clause because California Probate Code section 246 otherwise permits the issue of a "deceased" spouse or child (a contesting beneficiary is presumed to have predeceased the testator or settlor) to take in his or her place. The no-contest law allows this awkward result to be avoided if the no-contest clause includes an express provision to the contrary.
What Policy Supports Enforcement of a No-Contest Clause?
No-contest clauses are included in wills and trusts to discourage challenges to the validity of those instruments. Estate planning clients are usually very clear on their wishes for the distribution of their estates after a death. They understand whom they wish to benefit and whom they do not wish to benefit and the manner by which the inheritance is to be shared or distributed. They do not expect persons other than those designated as beneficiaries to receive any interest at all. In other words, estate planning clients want their wills and trusts to be carried out without contesting legal action frustrating their objectives. They certainly do not expect that their estate plan will be disregarded in any way (such as alternative distribution under the intestacy provisions of the California Probate Code, if a contest is successful).There is a policy in the California Probate Code to allow testators and settlors to preclude the taking of an inheritance by anyone who brings a contest. Indeed, some wills and trusts have incorporated very express and lengthy no-contest clause provisions in the past, the application of which may have had varying results in courts of law. Accordingly, the California legislature recently adopted new no-contest clause statutory provisions.
What Exactly Does the New No-Contest Law Require?
Newly enacted California Probate Code section 21311(a) provides that a no-contest clause is enforceable only against three (3) types of "contests," being:
For these purposes, "probable cause" supporting a contest exists if the facts known to the contesting beneficiary would otherwise cause a reasonable person to believe that there is a reasonable likelihood that the relief requested by his or her challenge would be granted by the court after an opportunity for further investigation or discovery (see California Probate Code section 21311(b)).Also for these purposes, a "direct contest" is limited to six (6) specified types of challenge alleging the invalidity of a "protected instrument" on the grounds that it was executed by forgery, lack of due execution, lack of capacity of the transferor or revocation of a will or trust, among other categories. A "pleading" for these purposes means a petition, complaint, cross-complaint, objection, answer, response or claim filed with the court by the contesting beneficiary.
Which Documents are "Protected Instruments"?
The new no-contest clause law covers any "protected instrument." A protected instrument is any document that expressly includes the no-contest clause, as well as an instrument which is in existence on the date the instrument expressly including the no-contest clause is executed and which is expressly identified in the no-contest clause, even if by reference to an identifiable class of instruments. As an example, the beneficiary designation which one may make under his or her life insurance policy, qualified pension trust or IRA can be included within the protection of the no-contest clause adopted in his or her will or trust if that no-contest clause makes specific mention of the life insurance policy, qualified pension trust or IRA as being within the reach of its protection.
How Does the New No-Contest Law Apply to My Existing Will or Trust?
Under the common law, no-contest clauses are strictly construed in their application. The new law continues this requirement. However, the new law will only apply to a contest of a protected instrument filed on or after January 1, 2010, if that protected instrument became irrevocable on or after January 1, 2001, including wills and trusts.
Do I Need to Change My Estate Planning Documents Now?
I suggest that your estate plan be reviewed to determine how its no-contest clause will be applied both before and after the new law becomes effective the first of next year. Only then will you be certain that your testamentary wishes will be followed after a death should your beneficiary seek to challenge your estate plan. Again, the new law will limit the application of your no-contest clause to the contests described above. Somewhat more complicating is the fact that previously signed wills and trusts, and those prepared during the balance of 2009 should include two provisions for the no-contest clause should the estate plan become irrevocable by death during 2009. New language has been developed which can be added to your existing instruments.
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