The California Law Revision Committee has posted a tentative recommendation about no contest clauses. These are the provisions in your estate plan that punish a beneficiary for suing the estate by disinheriting him or her. California has long had a love/hate relationship with no contest clauses. While there are strong reasons to keep people from suing willy nilly when someone dies, the state is also concerned that legitimate issues get aired in court.
California changed its no contest laws just a few years ago, which is why so many of our clients needed to update that provision of their estate plan.
Now the Committee is making a further recommendation. The Committee suggests that no contest clauses should be honored in general. But there should be a big exception to protect against elder abuse, a growing problem.
The Committee proposes that a new law should enable beneficiaries to make contests where there is a significant possibility of elder abuse in a late change of beneficiaries. This new law would protect those beneficiaries from disinheritance.
You can read the Tentative Recommendation at http://www.clrc.ca.gov/pub/Misc-Report/TR-L637.pdf
The proposal is to allow contests “that are brought with probable cause.” As estate planners for our clients, many of whom have strong reasons to create enforceable no contest clauses, we will be watching the case law to determine what rises to the level of “probable cause”.
Planning Tip: A long history of limiting the rights of a particular beneficiary makes enforcement of the no contest clause against that beneficiary much more likely.
The Committee’s Summary follows:
“The Law Revision Commission finds that there are good policy reasons to enforce a no contest clause. However, the existing statute has become overly complex and is contributing to uncertainty as to whether a particular no contest clause would apply to a contemplated action. That uncertainty has led to widespread use of the declaratory relief procedure, adding a new layer of litigation to contest cases. A no contest clause can also operate to deter legitimate inquiry into cases of elder financial abuse and fraud. An abuser may coerce or trick an elderly person into amending an estate plan to include a gift to the abuser, combined with a no contest clause. If the other beneficiaries contest the gift, they risk losing their own bequests. That can insulate fraud from effective judicial review.
After weighing the advantages and disadvantages of the no contest clause, the Commission recommends that enforcement of a no contest clause be preserved, but that the statute be significantly simplified. The existing complex provisions exempting most “indirect contests” from the enforcement of a no contest clause would be replaced with a rule limiting the enforcement of a no contest clause to a specified list of traditional “direct contests.” The declaratory relief provisions could then be deleted as unnecessary. Existing exceptions to enforcement for certain types of contests that are brought with probable cause would be generalized to apply to all direct contests. That would provide a greater opportunity for beneficiaries to bring a direct contest based on suspected elder abuse.”
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