Back to the Future: How to Look at an Amendment Contest After Aviles v. Swearingen

• Publication year: 2018
• Author: By Julie R. Woods, Esq.

BACK TO THE FUTURE: HOW TO LOOK AT AN AMENDMENT CONTEST AFTER AVILES V. SWEARINGEN

By Julie R. Woods, Esq.*

INTRODUCTION

Estate planners, to some extent, predict the future for their clients. Litigators, to some extent, reconstruct the past to best determine a settlor or testator's intent. Therefore, trust and estate attorneys should develop a viewpoint that includes both foresight and hindsight.

No contest clauses are often in the forefront of an instrument's analysis. In terrorem clauses are designed to incite fear and dissuade a beneficiary from challenging the validity of an instrument and unravelling the settlor's or testator's intent. A contestant may be undeterred from challenging the instrument, however, when seemingly warranted on the grounds of lack of capacity, undue influence, forgery, menace, or duress. A contestant also may challenge the instrument when the cost-benefit analysis is in the contestant's favor, or when the no contest clause itself is ineffective.

This article serves as a guide for estate planners to draft effective no contest clauses, and for litigators to dissect and challenge ineffective ones. The court assembled the framework to analyze no contest clauses, at least in the context of a trust amendment, in the recent opinion of Aviles v. Swearingen (2017) 16 Cal.App.5th 485.

Stemming from renowned Ventura County Judge Glen M. Reiser, and affirmed by the Sixth Division of the Second Appellate District, Aviles v. Swearingen boldly links current Probate Code section 21310 with past decisional and statutory authority.

The opinion begins: "In this case of first impression, we apply newly enacted, at the time, Probate Code section 21310. If, in theory, this could lead to a debatable result, so be it."¹The court continues: "There is no 'play in the joints' in probate law, as Chief Justice Rehnquist would say. We 'strictly' follow probate law as given to us by the Legislature."²

Contrary to Judge Reiser's admonition, the result should not be debated. After nearly three decades of evolution in the statutory scheme, the appellate court weeded through the codification and recodification of relevant law to examine the core principles of no contest clauses in trust amendments. The court strictly construed the language of the current statutes, in accord with prior statutes and case law, to hone the effective means of applying no contest clauses across instruments.

Guided by Aviles v Swearingen, this article explains how to construe no contest clauses across instruments. An amendment should be scrutinized from several angles. The attorney will first "look straight" at the amendment to determine whether it has its own no contest clause. If not, the attorney will then "look forward" from the original instrument to determine whether its no contest clause states that challenging an amendment triggers a contest. The attorney also will "look back" from the amendment to determine whether it effectively refers to, incorporates, and effectuates the original instrument's no contest clause. Accordingly, this article provides a practical framework and pocket-scenarios for estate planners and litigators to gauge whether a challenge to an instrument's amendment triggers a no contest clause.

I. SEEING THE BIG PICTURE: A BRIEF RECAP OF THE EVOLUTION OF NO CONTEST CLAUSE LAWS

A. Principles and Policy of the Terrifying Terms

The phrase "in terrorem" commonly refers to no a contest clause. Where does it come from and what does it mean?

In 1898, the United States Supreme Court analyzed the difference between a clause merely meant to incite terror in beneficiaries to dissuade them from contesting a will, and a meaningful provision that risks disinheritance tied to a condition placed on a beneficiary's devise.³ "When legacies are given to persons upon conditions not to dispute the validity of, or the dispositions in wills or testaments, the conditions are not in general obligatory, but only in terrorem. If, therefore, there exist probabilis causa litigandi, the non-observance of the conditions will not be forfeitures."⁴ The Supreme Court reasoned that a court of equity considers the clause "merely to guard against vexatious litigation."⁵ The clause changes from merely in terrorem into having an effect of possible disinheritance "when the acquiescence of the legatee appears to be a material ingredient in the gift, . . . [t]he bequest is only quousque, the legatee shall refrain from disturbing the will and if he controvert it, his interest will cease and pass to the other legatee."⁶

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No contest clauses deter beneficiaries from seeking to countermand a testator or settlor's estate plan. Stated simply, "[a]n in terrorem or no contest clause in a will or trust instrument creates a condition upon gifts and dispositions provided therein."⁷.. "In essence, a no contest clause conditions a beneficiary's right to take the share provided to that beneficiary under such an instrument upon the beneficiary's agreement to acquiesce to the terms of the instrument."⁸

A beneficiary triggers a no contest clause when he or she files a certain legal action, "us[ing] the appropriate machinery of the law," to thwart the settlor or testator's expressed wishes.⁹.. "[W]hether he succeed or fail, his action is a contest."¹⁰.. "[T]he party, who has deliberately and designedly taken such action, [cannot] be heard to say that he has not contested[.]"¹¹

The purpose of a no contest clause is to prevent attacks on a testator or settlor's "character, reputation, or sanity by dragging into publicity his private life, and it was equally to secure to the beneficiaries whom he named, the fruits of his bounty."¹² Thus, a no contest clause serves to discourage the contest of an instrument by imposing a penalty of forfeiture against beneficiaries who challenge the instrument.¹³

Competing public policies task courts with favoring no contest clauses while strictly construing them.¹⁴ Public policy favors no contest clauses because they discourage litigation and give effect to the testamentary testator's intent. ¹⁵ Courts thus "honor the intent of the donor and discourag[e] litigation by persons whose expectations are frustrated by the donative scheme of the instrument."¹⁶ Simultaneously, courts must balance the competing policy of "avoiding forfeitures and promoting full access of the courts to all relevant information concerning the validity and effect of a will, trust, or other instrument."¹⁷ Courts thus cautiously insist upon a clear and unequivocal attack before penalizing a beneficiary who has violated the clause.¹⁸

Courts engage in a factually intensive inquiry of the effectiveness of an instrument's no contest clause.¹⁹ "Whether there has been a 'contest' within the meaning of a particular no-contest clause depends upon the circumstances of the particular case and the language used."²⁰ "[T]he answer cannot be sought in a vacuum, but must be gleaned from a consideration of the purposes that the [testator] sought to attain by the provisions of [the testator's] will."²¹ Because a violation of a no contest clause could result in a forfeiture, courts must strictly construe the clauses and may not extend them beyond what was plainly the testator or settlor's intent.²²The testator or settlor's intentions control, and a court "must not rewrite the [testator's] will in such a way as to immunize legal proceedings plainly intended to frustrate [the testator's] unequivocally expressed intent from the reach of the no-contest clause."²³

B. Legislative History

After studying the construction, enforcement, and competing policies involved in enforcement of no contest clauses, the California Law Revision Commission recommended partial codification of existing California case law that the Commission found was "basically sound," in addition to a number of other changes to improve the existing law.²⁴ With this broad foundation, the Legislature established the statutory scheme for no contest clauses in the Probate Code, repealing and reenacting it in 1990 at Probate Code section 21320. As case law in this area developed and solidified, so did the Legislature amend the statutes.²⁵

In 2000, the Legislature amended former Probate Code section 21305, subdivision (a), which limited the enforceability of no contest clauses.²⁶ Under that section, certain actions were not "a contest unless expressly identified in the no contest clause as a violation of the clause."²⁷

Because no contest clause disputes hinged on the application of theoretical concepts, "[t]he complexity of the statutory scheme, actually promoted further uncertainty as to the scope of application of a no contest clause."²⁸ For instance, the statutes used an "open-ended definition of [a] 'contest,' combined with a complex and lengthy set of exceptions"²⁹Another problematic area was the safe-harbor provision that flooded courts with petitions for declaratory relief, in addition to instrument contests, "add[ing] an additional layer of litigation to probate matters, which undermined the goal of a no contest clause in reducing litigation by beneficiaries."³⁰In turn, the Legislature repealed Probate Code section 21300 et seq. in 2008, renovating the entire scheme.³¹

The "new" no contest clause statutes, Probate Code sections 21310 through 21315, became operative on January 1, 2010. ³² The Code limits application to "any instrument, whenever executed, that became irrevocable on or after January 1, 2001."³³ "The new scheme limits the enforcement of no contest clauses 'to an express and exclusive list of contest types," more tightly defining what affirmatively constitutes a contest.³⁴

C. Current Codification: Probate Code Section 21310 et seq.

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For instruments that became irrevocable on or after January 1, 2001, a no contest clause is "a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court."³⁵ A "contest" is a pleading filed with the court by a beneficiary...