How enforceable are "no-contest" clauses in California?
A no contest is a special provision that you may include in your Will or Trust that causes a beneficiary to forfeit what he would have received if he challenges your Will or Trust. In this post, we explore the enforceability of no-contest clauses to gain a better understanding of their limitations. Let's first start with some technical definitions. California Probate Code Section 21310 is the relevant place to look. It states the following:
(a) “Contest” means a pleading filed with the court by a beneficiary that would result in a penalty under a no contest clause, if the no contest clause is enforced.
(b) “Direct contest” means a contest that alleges the invalidity of a protected instrument or one or more of its terms, based on one or more of the following grounds:
(2) Lack of due execution.
(3) Lack of capacity.
(4) Menace, duress, fraud, or undue influence.
(5) Revocation of a will pursuant to Section 6120, revocation of a trust pursuant to Section 15401, or revocation of an instrument other than a will or trust pursuant to the procedure for revocation that is provided by statute or by the instrument.
(6) Disqualification of a beneficiary under Section 6112, 21350, or 21380.
(c) “No contest clause” means a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court.
(d) “Pleading” means a petition, complaint, cross-complaint, objection, answer, response, or claim.
(e) “Protected instrument” means all of the following instruments:
(1) The instrument that contains the no contest clause.
(2) An instrument that is in existence on the date that the instrument containing the no contest clause is executed and is expressly identified in the no contest clause, either individually or as part of an identifiable class of instruments, as being governed by the no contest clause.
Although no-contest provisions may seem to be a good way to inhibit beneficiaries from challenging your Will or Trust, effective as of January 1, 2010, new laws were enacted to limit their scope of power. In essence, no-contest clauses are enforceable in three types of situations.
- A person makes a direct contest (defined above) without probable cause (i.e., the facts do not allow a reasonable person to believe that there is a reasonable likelihood that the contest would prevail).
- A contestant is challenging the transfer of property on the basis that the deceased person didn't own it.
- A creditor's claim is filed or if actions are taken based on a creditor's claim by the contestant.
In the second and third scenarios, the no-contest provision must make explicit mention of the fact that the provision applies in those situations. See California Probate Code Section 21311:
(a) A no contest clause shall only be enforced against the following types of contests:
(1) A direct contest that is brought without probable cause.
(2) A pleading to challenge a transfer of property on the grounds that it was not the transferor’s property at the time of the transfer. A no contest clause shall only be enforced under this paragraph if the no contest clause expressly provides for that application.
(3) The filing of a creditor’s claim or prosecution of an action based on it. A no contest clause shall only be enforced under this paragraph if the no contest clause expressly provides for that application.
(b) For the purposes of this section, 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.
Although the enforceability of no-contest clauses are somewhat limited, they are fairly common in estate planning documents, and it's a good idea to understand their limitations.