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Limiting Challenges to a Trust in Limited Circumstances

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Stevenson Law Office

A no contest clause in a trust discourages a beneficiary from challenging it, normally by threatening the forfeiture of the distribution if a challenge is made. These clauses are enforceable in limited circumstances. Depending on the circumstances the clause may or may not be a strong deterrence to future legal action by a beneficiary.

California law concerning these clauses changed in 2010. It now provides a no contest clause is not enforceable if there’s a direct challenge brought with “probable cause” to question a trust based upon:

  • Forgery
  • Lack of due execution
  • Lack of capacity (serious physical infirmity or unsound mind of the person creating the trust), and
  • The trust is the result of menace, duress, fraud, or undue influence by another party. Probable cause as based on reasonability. To decide if it’s present in a case, a judge would consider:
  • Would the facts cause a reasonable person to believe there’s a reasonable likelihood that relief will be granted after an opportunity for further investigation and discovery?

Probable cause will be fact specific. If you’re considering challenging a trust with a no contest clause, it’s best to discuss the situation with an experienced trust attorney. Your perspective may be clouded by your close relationship with the beneficiaries or those who created the trust. An objective view of the situation is needed.

A no contest clause will not be enforced in situations where probable cause is not needed:

  • A challenge to the transfer of property because it was not the transferor’s property at the time of the transfer, known as a “forced election.”
  • Filing or prosecuting creditors’ claims.

For a no contest clause to have teeth, it needs to take away a beneficiary’s disbursement if the contest is unsuccessful. The larger the amount at stake the more effective the clause may be.

If a beneficiary asks a trustee for an accounting (a list of how trust assets have been disbursed and spent), this would not be considered contesting the trust and a no contest clause would not apply.

Under California law in effect prior to 2010, trust contests were a high-stakes, all-or-nothing proposition. The legislature found the penalty of total forfeiture excessively punitive and changed the law. The new law allows enforcement of these clauses in limited circumstances, which serves the purpose of limiting baseless challenges without the threat of bleak outcomes for all those unsuccessfully contesting a trust and the circumstances under which it was created.

Contact my office if you’re planning to create a trust. If so, depending on your goals, circumstances and relationships with the beneficiaries you have in mind, including a no contest clause may make sense. If you’re considering challenging a trust or defending against a challenge with such a clause, we can talk about the facts of your situation and what impact a no contest clause may have.