The matriarch of the family, Betty, dies aged 92 leaving behind a $3 million estate. Thirty years earlier Betty had worked with an attorney to create a revocable living trust. The trust provided that each of her three children would share equally in her estate. Six weeks before she died, Betty amended her trust so that two of her children would receive $50,000 each and the remainder of her estate would go to her oldest child, who had been living with her and acting as her carer for several years before she passed away. The two children who have effectively been disinherited are sure that their mother would not have knowingly treated them in this way. They believe they had always had a solid relationship with their mother, although in recent years the oldest son had made it difficult for them to visit their mother as often as they would have liked to.
This is a surprisingly common scenario. The first instinct of the younger children is invariably to seek to challenge the validity of the trust amendment on the basis that something nefarious has occurred. Did the oldest son bring to bear such pressure on his mother such that the amendment could be deemed the product of undue influence? As her health deteriorated and she was taking strong medication for pain relief, could Betty be said to have been of sound mind when she executed the trust amendment leaving the bulk of her assets to her oldest son?
Clearly there are various avenues that could be pursued to challenge the validity of the trust amendment. However, the trust contained a “No Contest” clause. This is a clause that prohibits a beneficiary from receiving a gift under a will or trust that they would otherwise receive had they not decided to contest the will or trust. In this case, if the two younger children challenge the validity of the trust amendment and lose that case, they will not receive the $50,000 they would otherwise have received. Had Betty’s trust left them with nothing, the no contest clause would not have been a deterrent to filing suit because they had nothing to lose. However, $50,000 is a substantial enough sum that it will cause the younger children to give serious consideration as to whether they want to file a lawsuit.
One important element that the children have in their favor is that, under the California Probate Code, even if they file a lawsuit and lose, they will not forfeit their $50,000 gifts if they had “probable cause” for contesting the trust. Probable cause is defined in Probate Code section 21311(b): “probable cause exists if, at the time of filing a contest, the facts known to the contestant would cause a reasonable person to believe that there is a reasonable likelihood that the requested relief will be granted after an opportunity for further investigation or discovery.”
There is much to unpack in this definition of probable cause, but the key point is that it severely limits the effectiveness of no contest clauses. In a fact pattern such as this one, it seems likely that the younger children would be able to show probable clause for filing a lawsuit, even if they ultimately lose the case. Note that they do not need to be in possession of all the facts and evidence at the time they file the lawsuit. They just need to be aware of sufficient facts and circumstances that, if investigated further, could lead to the discovery of additional facts that would make it reasonable to file a lawsuit.
One other point to note for beneficiaries seeking to challenge the validity of a will or trust that contains a no contest clause: time is of the essence. A recent California Court of Appeal opinion held that the “probable cause” exception would not be available in cases where the statute of limitation has run. After the creator of a trust has passed away, the successor trustee will serve notice on potential beneficiaries advising them that they have 120 days within which they must challenge the validity of the trust. If a beneficiary files a lawsuit outside of this 120 day period and loses, the beneficiary will not be able to rely on the probable cause exception. He would therefore lose the case, as well as any inheritance he had been left in the trust.
Many aggrieved beneficiaries are understandably nervous to bring a lawsuit challenging the validity of a will or trust where the document contains a no contest clause. However, California law aims to strike a balance between discouraging weak contests and ensuring that legitimate claims can prevail. As a result of the “probable cause” safe harbor, no contest clauses are a significantly less effective deterrent to filing a lawsuit than is widely believed to be the case.