California’s Public Policy Against the Enforcement of No-Contest Clauses
Many of our clients specifically ask to have a “no-contest clause” in their estate planning documents. These clients have made many difficult decisions regarding their estate plan and do not want family members to challenge these decisions later. For example, a parent may decide to give one of his or her children a greater share than the other children and do not want this decision contested after their death. However, clients need to be aware that California law severely limits the scope of no-contest clauses. As a result, there is no such thing as an iron clad no-contest clause under California law.
According to California Probate Code §21310(c), a no-contest clause is “a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court.” A key limitation of this statutory language is that the beneficiary has to actually file something in court for the no-contest clause to be enforceable. However, there is nothing an estate planning attorney can include in a trust to prevent a beneficiary from suing. Under Probate Code §21311, the beneficiary’s court filing must be brought without probable cause in order for a no contest clause to be enforceable. When determining whether or not probable cause exists, the inquiry turns to whether the beneficiary is acting like a reasonable person based on the facts known to the beneficiary, and that there is a reasonable likelihood of success in bringing the contest. A no-contest clause requires that all three of the following occur.
- That the beneficiary files a certain type of limited lawsuit with the court.
- The beneficiary loses.
- The judge makes a finding after trial that the lawsuit was not brought with probable cause.
If all three of these requirements are met, then the beneficiary forfeits his or her inheritance in the trust.
As a result of California’s statutory framework, estate planners have to advise their clients that a no-contest clause in their estate planning documents have limited effect and will not necessarily deter litigants who conjure up any probable cause to file a challenge with the court.
In addition, most California probate and civil cases settle without a trial, and as a result the no- contest clauses are rarely enforced. Even if the beneficiary files an action with the court and loses, the court can still find that the beneficiary is entitled to what he should receive under the estate planning documents if the court determines that there is probable cause in bringing the action in the first place.
One final wrinkle with no-contest clauses in California is if the no-contest clause is broader than the statutory language, the no-contest clause will be deemed unenforceable. Many people have estate planning documents that were drafted prior to the changes in the California Probate Code limiting the applicability of no-contest clauses. As a result, any individual wishing to have the limited protection of a no-contest clause should have an estate planning attorney review their documents to ensure they comply with the statutory requirements of enforceable no-contest clauses.