The California Court of Appeal just handed down an opinion very strictly limiting the application of a no contest clause contained within trust to later trust amendments.
Peggy was battling cancer for 5 years, during which time her friends, Tracy and David, became the exclusive suppliers of medical cannabis upon which Peggy depended for treatment. Anticipating her demise, Peggy placed Tracy in custody of all of her estate planning documents. Soon after, Peggy complained that Tracy read the documents and confronted her about the disposition of her estate. Shortly after, Peggy executed a trust amendment created in secret, and without advice or assistance of her longtime estate planning attorney, leaving all of her money to Tracy – to the exclusion of Peggy’s brother and godchildren, natural objects of her bounty, and beneficiaries under the estate plan in existence when placed in Tracy’s custody. After Peggy’s demise, Tracy produced the trust amendment, and the beneficiaries went straight to court.
Peggy’s brother, godchildren, and boyfriend contested the validity of the trust amendment on grounds of undue influence and financial abuse. Tracy immediately filed a counter petition arguing that the trust contest violated the no contest clause contained in the earlier dated trust. She asserted that the no contest applied equally to the later dated trust amendment, and that the contestants should therefore be disinherited. The trial judge ruled against Tracy’s counter petition, and she appealed.
A no contest clause penalizes the beneficiary of a trust who files a direct contest of the trust without probable cause. This is meant to discourage legal fights over the settlor’s wishes. However, California law says that a no contest clause applies only to 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.” According to the Court of Appeal, a “no contest clause and its application to future trust amendments is strictly construed” and does not apply to future trust amendments “unless the amendment specifically refers to the no contest clause.” The Court noted, “the no contest clause is a favorite device of undue influencers and those who use duress to become the (unnatural) object of a decedent’s bounty.” Citing an earlier case, Perrin v. Lee, the Court announced, “Generic no contest clauses, which is what we have here, are obsolete.”
As of October 23, 2017, the California Court of Appeal has affirmed the original court’s ruling. You can see a copy of the ruling here.
No estate modifications made under duress should be considered legal in the eyes of the law, and a probate attorney can be an essential part of ensuring that such frauds are defeated. Keep following the blog on Lowthorp Richards to learn more about estate administration from our experienced attorneys.