The Truth About No Contest Clauses

by Francis Burton Doyle, Esq., WealthPLAN

Many of my clients specifically ask me to put a “no contest” clause into their estate planning documents.  These clients have made a number of difficult decisions regarding their estate plan and they do not want their family members to challenge the decisions they have made. For example, a parent may decide to give one of his or her children a greater share of the estate than the other children and they do not want this decision upset after their death.

Other clients want to put a no contest clause into their estate planning documents so as to prevent family members squabbling over their estates after their deaths.  Many of these clients have experienced first hand destructive inter-family legal disputes over the estate of a loved one and wish to spare their own heirs the pain and agony of such legal controversies.  In addition to a standard “no contest” clause, some of these clients wish to include a provision in their will and/or trust which requires their beneficiaries to mediate or submit to arbitration any disputes among them.

Unfortunately, the desire of clients to have an iron clad “no contest” clause or a clause requiring mediation or arbitration is thwarted by current California law.  Relatively recent statutory changes to California law provide that a “no contest” clause in a will, trust or other testamentary document will only be enforced against legal challenges to a testamentary plan which are filed without “probable cause.”  This means that a beneficiary can file a challenge to a decedent’s testamentary plan despite the existence of a “no contest” clause if the contesting beneficiary has any plausible basis for doing so. Since this statutory change is a relatively recent development, presently there is no judicial precedent providing guidance on what constitutes “probable cause.”

As a consequence, estate planners have to advise their clients that the “no contest” clauses in their estate planning documents are of limited effectiveness and will not deter litigants who can conjure any “probable cause” to file a challenge.  In addition, a recent California case held that a clause in a trust which required beneficiaries to arbitrate disputes was ineffective.  The court reasoned that contracts can have binding arbitration clauses because the parties agree to the provision as part of their contract. In the trust situation, however, the beneficiaries are not parties to any contract and therefore cannot be bound by an arbitration provision they not contractually agree to.

Unfortunately, practitioners must advise their clients of the limited effectiveness of standard “no contest “ clauses under California law as well as the unenforceability of mandatory arbitration clauses.

Quote to Ponder
“Happiness is not having what you want.
It is wanting what you have.”
~Unknown

About the Author:Francis Burton Doyle, Esq., is the founder of WealthPLAN, with over 30 years of experience in Tax, Estate-Planning Probate, Trust Administration and Litigation. He is Certified Legal Specialist, Taxation Law and Probate, Estate Planning and Trust Law (California State Bar). Frank is the Past President of both the Santa Clara County Estate Planning Council & the Silicon Valley Planned Giving Committee. Frank is also the Past Chair of the  Planning Committee, Annual Jerry A. Kasner Symposium, Santa Clara University, School of Law. Mr. Doyle provides all the course development and instruction for the Advanced Legal Training Institute.