The answer to this question depends, primarily, on when the instrument (the trust or will) became irrevocable.
In general, a no contest clause is a provision in a trust or will that, if enforced, would penalize a beneficiary for filing an action in court pertaining to the trust or will. No contest clauses are supposed to act as deterrents and discourage litigation. With the typical no contest clause, a named beneficiary will forfeit his/her specific gift or share of the estate by bringing litigation contesting a trust or will or a part of a trust or will.
A no contest clause is only enforceable against named beneficiaries. In other words, if the person bringing the contest is not given anything in the trust or will, the no contest clause has no effect as to that person. Put another way, that person has nothing to lose in bringing a contest.
Also, as to named beneficiaries, a no contest clause is only effective if it has enough “teeth” to it. The point of including such a clause in a trust or will is to make the beneficiary really think about if he/she is willing to take the risk of losing the specific gift or share of the estate that would be forfeited with an unsuccessful contest. In other words, if the beneficiary is to receive $10,000 per the trust terms but stands to split a $500,000 estate 50/50 if the contest is successful, the beneficiary may very well take that risk.
Instruments That Became Irrevocable Before January 1, 2001
Because of changes in the law as of January 1, 2010, we now have one set of rules governing no contest clauses in instruments that became irrevocable before January 1, 2001 and another set of rules for instruments that became irrevocable after January 1, 2001.
The “old” law governs instruments that became irrevocable before January 1, 2001. Under the old law, no contest clauses are generally enforceable in California. Such no contest clauses can take many forms, ranging from simple clauses to prevent challenges based on lack of capacity or undue influence to more broadly worded clauses to prevent almost any type of challenge. Also, the no contest clause can be triggered by either a direct or indirect contest or challenge to the instrument or one of its provisions.
Additionally, under the old laws, a beneficiary can obtain a ruling from the court to determine if the proposed contest or challenge would or would not trigger the no contest clause. This is commonly known as filing a safe harbor petition and is done before filing the actual contest petition (which is a separate filing).
Instruments That Became Irrevocable After January 1, 2001
In 2008, legislation was enacted to significantly restrict the effectiveness and breadth of no contest clauses. These new laws came into effect January 1, 2010 and apply to instruments that became irrevocable after January 1, 2001.
Under the new laws, a no contest clause is only enforceable if the contest falls within one of three types of categories:
- a direct contest brought against the instrument and without probable cause
- challenging certain property transfers but only if expressly barred by the no contest clause
- filing or prosecution of creditor’s claims but only if expressly barred by the no contest clause
The direct contest category deserves more discussion. A direct contest is brought by filing a pleading in court challenging a particular term or the entire instrument (trust or will). To be subject to the no contest clause, the beneficiary must bring a direct action based on certain limited grounds set forth in the Probate Code at Section 21310. These grounds include forgery, lack of due execution, lack of capacity, menace, duress, fraud, or undue influence, revocation, and disqualification of a beneficiary. The beneficiary must also have brought the contest without probable cause.
What does this mean? As to a direct contest pertaining to instruments that became irrevocable after January 1, 2001, if the beneficiary is successful in the contest and wins, then the no contest clause does not apply. If the beneficiary loses the contest, then the beneficiary must convince the court that he/she had probable cause to bring the contest. If not, the beneficiary is disinherited and loses his/her gift.