Beneficiary Beware: California No-Contest Clause Could Bar Your Claim
Many of today’s estate plans contain no-contest clauses in their trust instruments. A no-contest clause is a provision that is designed to reduce California trust litigation. Typically, the provision states that, if a beneficiary initiates a legal proceeding challenging the validity of the trust or any of its provisions, the beneficiary will lose his rights to receive any property from the trust if he loses in the court proceeding. For this reason, if you are the beneficiary of a trust and are considering bringing a claim related to the trust, it is vital that you consult an experienced California trust litigation lawyer for guidance.
Beneficiary Beware – No-contest laws vary from state to state. The following are helpful facts about the enforceability of these clauses under California’s no-contest law:
- Effective January 1, 2010, many types of no-contest clauses became unenforceable under California trust law.
- No-contest clauses are enforceable against direct contests brought with probable cause.
- Direct contests are those that are brought on grounds of forgery, lack of due execution, lack of capacity, menace, fraud, duress, undue influence, or disqualification of a beneficiary in a fiduciary relationship to the creator of the trust.
- If the no-contest clause specifically mentions claims challenging the transfer of property on the grounds that the property did not belong to the transferor, then the clause is enforceable.
- If the no-contest clause specifically mentions the filing of a creditor’s claim, it is enforceable.
- Under the new law, no-contest clauses are presumed unenforceable unless the clause falls into one of the exceptions.
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