No Contest Clauses Need to Be Reformed, Not Abolished

• Citation: Vol. 10 No. 3
• Publication year: 2004
• Author: By Adam F. Streisand, Esq. and Albert G. Handelman, Esq.

NO CONTEST CLAUSES NEED TO BE REFORMED, NOT ABOLISHED‡

By Adam F. Streisand, Esq.^* and Albert G. Handelman, Esq.^**

I. INTRODUCTION

On July 24, 2004 the Executive Committee of the California State Bar's Trusts and Estates Section, comprised of some the most accomplished and devoted trust and estate lawyers in the state, voted by a wide majority to approve proposed legislation that would abolish the enforceability of no contest clauses in California. The authors of this article dissented for the reasons discussed below and hope that the Legislature will decline to enact the proposed legislation. The authors offer instead a very simple solution to the problems that motivated the Executive Committee into action.

It has become commonplace for estate planners to include a no contest clause in a will or trust to stem the ever increasing tide of internecine warfare. A no contest clause is intended to deter beneficiaries—upon threat of disinheritance—from challenging a will, a trust or some other document constituting part of an individual's integrated estate plan, or any provision of any such document. A majority of states do not enforce no contest clauses.¹But they have been valid and enforceable in California for more than 100 years because no contest clauses advance the important public policies of discouraging litigation and protecting testator intent.

So why would the most dedicated and influential group of trust and estate attorneys in the State seek to propose legislation that would eradicate more than a 100 years of law that seeks to reduce litigation and allow testators to dispose of their own money as they see fit? It is not that anyone hopes that there will be more litigation. There are three reasons that proponents of the proposed legislation offer to justify its enactment:

(1) The enforcement of no contest clauses has lead to an onerous amount of litigation over what constitutes a contest in the first instance;
(2) No contest clauses lead to the enforcement of wills and trusts that were the product of undue influence, fraud, or the testator's unsound mind; and
(3) In order to make no contest clauses effective, testators have to provide some amount to persons they wish to disinherit who then have something to lose if they do in fact contest the will or trust.

Each of these attempts to justify repeal and abolition of no contest clauses is overstated for the reasons discussed below. Moreover, reforms proposed by the same Executive Committee and enacted only fairly recently have shown great promise and have simply not been given ample time. The system may be broken, but it is not beyond repair.

II. THE EVOLUTION OF NO CONTEST LITIGATION

It is clearly the case that litigation over the applicability and enforceability of no contest clauses has become all too commonplace, adding significant expense, time and uncertainty to the resolution of disputes over trusts and estates. In California, litigation over no contest clauses began by addressing their enforceability in general.² Once the validity of no contest clauses was established, the courts entered a new era of determining what acts constitute a contest in a particular situation.³

Because a no contest clause results in a forfeiture, courts must strictly construe the clause and seek to prevent it from extending beyond the testator's plain intent.⁴ As courts struggled to resolve ambiguities and determine whether certain acts fell within the terms of a particular no contest clause, estate planners became increasingly more sophisticated in their use. Drafters began spelling out in detail actions the testator intended to deter by the threat of disinheritance.

III. PUBLIC POLICY LIMITS ON NO CONTEST CLAUSES

In recent years, courts have been asked to decide whether the increasingly detailed and far-reaching no contest clauses are too Draconian in their effect. In Burch v. George,⁵ the Supreme Court affirmed the validity of a no contest clause that forced a surviving spouse to elect between making a claim against trust assets on community property grounds or accepting the benefits of her husband's trust. In Estate of Ferber,⁶ however, the Court of Appeal held for the first time that no contest clauses can go too far as a matter of public policy.

James Ferber understood the agony of family conflict. When his father Oscar died, family hostilities broke out into open warfare. James Ferber was appointed executor of Oscar's will. It took seventeen years to settle the estate, and the battle had a devastating effect on James Ferber's health. When he asked his attorneys to prepare his own will,⁷ he had one overriding goal: to prevent litigation and protect his executor from suffering a similar fate.

James Ferber instructed that his will include a no contest clause that would go as far as the law would allow and still remain enforceable. But neither the Legislature nor the courts had ever decided the outer boundaries of an enforceable no contest clause. Setting out on unchartered waters, James Ferber's attorneys crafted an expansive no contest clause that they believed also had appropriate limitations.

James Ferber died four months later...