From the Ashes: Can No Contest Clauses Be Resurrected by Conditional Gifts?

• Jurisdiction: California,United States
• Author: By Andrew Zabronsky, Esq.
• Publication year: 2008
• Citation: Vol. 14 No. 3

FROM THE ASHES: CAN NO CONTEST CLAUSES BE RESURRECTED BY CONDITIONAL GIFTS?

By Andrew Zabronsky, Esq.^*

What's in a name? that which we call a rose

By any other name would smell as sweet

- William Shakespeare, Romeo and Juliet, 1594

I. INTRODUCTION

As explained by Neil Horton in his accompanying article, the enforcement of no contest clauses will be severely restricted after January 1, 2010.¹ Some have suggested that these restrictions may not preclude the use of conditional gifts to accomplish some of the same objectives as no contest clauses.² This article will examine the extent to which conditional gifts might succeed as a substitute for no contest clauses, and the extent to which they would likely be struck down. Planners who lament the impending loss of effective no contest clauses will need to make such judgments as they revamp their forms to deal with the new law. Moreover, they will need to do so now, since most instruments drafted today will be governed by the new law when it becomes operative.³

II. CONDITIONAL GIFTS AS A DIRECT SUBSTITUTE FOR NO CONTEST CLAUSES

Conditional gifts, as the name suggests, are gifts made contingent on some circumstance or event. The most common condition is survival (e.g., "To Beneficiary, if she survives my by 30 days"), but conditions can also be used to coerce or reward behavior (e.g., "To Beneficiary, if she stays in school"), as long as they do not offend public policy (e.g., "To Beneficiary, if she divorces my no good son-in-law").⁴

Theoretically, conditional gift clauses could be adapted to accomplish everything no contest clauses accomplish. Indeed, as our Supreme Court has observed, a no contest clause is but a type of conditional gift clause: "An in terrorem or no contest clause in a will or trust instrument creates a condition upon gifts and dispositions provided therein."⁵ As the Supreme Court went on to explain, "In essence, a no contest clause conditions a beneficiary's right to take the share provided to that beneficiary under [a will or trust] instrument upon the beneficiary's agreement to acquiesce to the terms of the instrument."⁶ A conditional gift clause that conditioned a bequest on the beneficiary's express agreement to acquiesce in the estate plan, such as by signing a waiver, release, quitclaim deed, disclaimer or similar instrument, would provide a perfect substitute for no contest clauses.

Given the popularity of no contest clauses among settlors and testators, we expect that many planners will be looking for just such a substitute. Indeed, some are already gearing up to test the effectiveness of conditional gifts. San Francisco planner William J. Hoehler, for example, reports that he is considering a clause that would condition gifts on the beneficiary delivering to the personal representative or trustee, within a limited time, e.g., 90 days of request, a signed instrument prepared by the fiduciary waiving any right the beneficiary has (a) to contest the validity of any document signed by the decedent, (b) to challenge the fiduciary's characterization of the decedent's property, (c) to assert any claims against any asset reported on the decedent's Form 706 Estate Tax Return, (d) to assert any claims relating to lifetime transactions by the decedent, and, perhaps, (e) to challenge any action by the fiduciary.

Arguably, "[a] conditional gift is not governed by the [new law],"⁷ which by its terms only prescribes clauses that "penalize a beneficiary for filing a pleading in any court."⁸ It has been suggested that conditional gift clauses do not "penalize" beneficiaries because they do not involve forfeitures (i.e., strictly speaking, if the condition is not satisfied, the beneficiary never becomes entitled to the gift in the first place).⁹ It has also been suggested, again strictly speaking, that conditioning a gift on, for example, the waiver of a claim does not penalize the beneficiary for "filing" the claim. If either of these arguments is right, conditional gifts could be used to sidestep the new law entirely since, as noted, conditional gifts can do anything no contest clauses can. Can it really be, though, after years of study by the California Law Revision Commission (CLRC) and a near-unanimous judgment by both houses of the Legislature that no contest clauses should be severely restricted, that the new law would permit planners to adopt a substitute for no contest clauses merely by changing a few words in a form?

The author thinks not. As noted, no contest clauses condition a gift on the beneficiary's acquiescence in...