Ever since January 1, 2010, when California overhauled the rules governing the enforceability of “no contest” clauses – provisions in testamentary instruments that say anyone who challenges the instrument will be disinherited – most practitioners have come to view these clauses as toothless. A recent case offers hope for the continued strength of the traditional enforceability of the no contest clause.
Donkin v. Donkin (2012) 204 Cal.App.4th 622 (2012) (2nd App. Dist.) (petition to review granted) involved a trust dispute that had been initiated in 2009, prior to the change in the law regarding the enforceability of no contest clauses. The primary issue addressed was whether the 2009 rules or the new 2010 rules would apply to the enforceability of the no contest provisions in the subject trust instrument.
Prior to January 1, 2010, the law of this state for over a century was that no contest clauses were to be enforced according to their terms. On January 1, 2010, a new law took effect, which largely renders no contest clauses unenforceable. Under the new law, set forth at Probate Code sections 21310 et seq., filing a will or trust contest will trigger a disinheritance by the contestant only if he or she lacks “probable cause” to bring the challenge at the outset; whether the contestant ultimately loses the case is irrelevant. Many lawyers who practice in the estate and trust area view the “probable cause” standard as akin to a frivolousness standard.
Section 21315(a) provides that the new no contest law “applies to any instrument, whenever executed, that became irrevocable on or after January 1, 2001.” The new statutory regime governing no contest clauses thus contains an element of retroactivity. Testators who executed testamentary instruments from 2001 through 2010 with the expectation of giving effect to a no contest clause in their estate plan, and who died before the law went into effect, are the most detrimentally affected by the new law because they had no opportunity (or perceived reason) to adjust their plans in light of the new law’s consequences.
The Legislature included a “safety valve” to help mitigate the potentially harsh results of applying the new law retroactively. The Law Review Commission Comments to Section 21315 state in pertinent part: “Section 3 may further limit the application of this chapter to an instrument that became irrevocable prior to the operative date of the chapter.”
Donkin addressed Probate Code section 3(h). Section 3(h) provides:
If a party shows, and the court determines, that application of a particular provision of the new law or of the old law in the manner required by this section or by the new law would substantially interfere with the effective conduct of the proceedings or the rights of the parties or other interested persons in connection with an event that occurred or circumstance that existed before the operative date, the court may, notwithstanding this section or the new law, apply either the new law or the old law to the extent reasonably necessary to mitigate the substantial interference.
The Donkin ultimately engaged in a balancing test. The court noted in particular the evidence of the settlors’ intent to use the no contest provisions (and an arbitration clause) in their trust to avoid litigation between the beneficiaries and the successor trustees. Because of this reliance on prior law, among other factors, the court found that application of the new law limiting the enforceability of no contest clauses would result in an injustice, and that the prior law should govern.
Assuming no interference by the California Supreme Court in the Donkin decision, look for trial judges to utilize the “safety-valve” provisions of Probate Code section 3 in appropriate cases to avoid the unfair application of the new no contest rules.
If you have any questions regarding this posting, please contact John Minton at: firstname.lastname@example.org or (650) 342-9600.