Summer 2005

WHAT IS A NO CONTEST CLAUSE?

Due to the recent media coverage surrounding the life and death of Terri Schiavo, many individuals are creating testamentary documents (e.g., wills and trusts).  Yet, many individuals are not aware of a powerful testamentary tool called the “no contest clause.”  Whether you are a testator or a beneficiary, you should know what a “no contest clause” is and why you do not want to violate it.

 In California, any person creating a testamentary document can include a “no contest clause.”  The purpose of the “no contest clause” is to prevent a beneficiary from seeking to void, in whole or in part, any provision of a testamentary document and to cause a complete and total disinheritance if the “no contest clause” is violated. An example of a “no contest clause” is as follows: 

In the event that any beneficiary under this Will/Trust seeks to obtain in any proceeding in any court an adjudication that this Trust or any of its provisions is void, or seeks otherwise to void, nullify, or set aside this Will/Trust or any of its provisions, then the right of that person to take any interest given to him or her by this Will/Trust shall be determined as it would have been determined had such person predeceased the execution of this Will/Trust without issue.

 Why would someone use a “no contest clause”?  One could use the above clause when it is anticipated that a beneficiary will be unhappy with the property distributed to him/her (i.e., all I got was this cheap . . . ), and it is further anticipated that the same beneficiary will attempt to tie up the estate in litigation until a favorable settlement is reached.  Should the unhappy beneficiary attempt to challenge the validity of the testamentary document, enforcement of the above no contest clause would result in a complete and total disinheritance of the unhappy beneficiary.  Thus, a donor (i.e., the person who created the testamentary document) can rest in peace knowing that their final wishes will not be thwarted by a unhappy and/or greedy beneficiary trying to get more than what was gifted to him/her.  

California courts have routinely upheld the enforceability of the “no contest clauses” and have stated such clauses “are favored by the public policies of discouraging litigation and giving effect to the purposes expressed by the testator.”  However, California’s stated public policy is to avoid a forfeiture, absent the donor’s clear intent. Consequently, California courts should enforce no contest clauses only when the challenger is attempting to thwart the testator’s clear intent.   

Unfortunately, California courts can thwart a testator’s intent by enforcing a “no contest clause.”  Imagine, for example, that you create a will that distributes property to your spouse and two children.  The will includes a “no contest clause,” causing a complete and total disinheritance in the event of a contest.  Imagine further, that your will distributes $1 million to your spouse and $5,000 to your partially-disinherited daughter.  However, your will failed to expressly state how a retirement IRA worth $10,000 would be distributed, because the IRA came into existence after your will. 

After your death, your spouse files an action seeking a judicial clarification as to how the IRA is to be distributed.  In response, your partially-disinherited daughter asserts that your spouse contested the will causing a complete and total disinheritance of the entire $1 million.  The action is heard by the court, and the court rules that your spouse’s action violates the “no contest clause,” thereby causing a complete and total disinheritance of the $1 million.  Sound harsh?  Sounds like your intent to give your spouse a sizable distribution was thwarted because your spouse simply wanted court clarification as to how the after-the-fact IRA was to be distributed. 

Putting aside community property issues and the possible invocation of the safe harbor provisions of the California Probate Code, the above factual scenario is a very real possibility.   Unfortunately, disinheritance is not the only adverse consequence relating to the use of and enforcement of a “no contest clause.”  For example, the mere threat of enforcement of a “no contest clause” may discourage a beneficiary from seeking court assistance in uncovering undue influence.    

Because of the negative consequences associated with the use of and enforcement of a “no contest clause,” some legal professionals, including this author, are questioning whether courts should continue to enforce no contest clauses.  More specifically, the Executive Committee of the California State Bar’s Trusts and Estates Section voted to approve legislation proposed by the Litigation Committee of the section that would abolish the enforceability of no contest clauses in California.  The proposal passed by a 2-1 margin. 

Although the California Legislature has not yet proposed the legislation, many hope that the Legislature will act soon.  Regardless of what the Legislature does, before using a “no contest clause” in your testamentary document and/or before challenging a testamentary document, make sure to consult with a qualified legal professional. 

                                                                        GREGORY L. TORRES

Mr. Torres is an Associate in the firm’s litigation group.  Email:  glt@kpclegal.com.

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