The New No Contest Law: New Challenges for Trusts Aid Estates Attorneys
| Jurisdiction | California,United States |
| Author | By Neil F. Horton, Esq |
| Publication year | 2008 |
| Citation | Vol. 14 No. 3 |
By Neil F. Horton, Esq*
The Legislature has enacted Senate Bill ("SB") 1264, which dramatically changes the rules governing the enforcement of no contest clauses. The new law will repeal Probate Code1 sections 21300 - 21322, the existing provisions concerning no contest clauses,2 and replace them with Sections 21310 - 21315. The new law is reproduced in an appendix following this article. This article describes the changes made by the new law, the reasons for them, and some of the challenges they present to practitioners. While the new law is a substantial improvement over existing law, it fails to resolve certain problems and, like most new legislation, presents some new ones as well.
The new law stems from concerns expressed by the Executive Committee of the Trusts and Estates Section of the State Bar ("Texcom") that existing law regarding no contest clauses was too complex and uncertain in its operation. This uncertainty resulted in an increase in declaratory relief applications and increased delay and expense in administering trusts and estates. In addition, Texcom was concerned about elder abusers using no contest clauses to shield their undue influence.3 The Legislature directed the California Law Revision Commission ("CLRC") to study the issue and to report on a broad range of options, including modifying or repealing the existing statute.4 After more than two years of study, the CLRC recommended a new law which, with certain modifications, became SB 1264.
A. Operative Date
The new law does not become operative until January 1, 2010.5 After that date, however, it will apply "to any instrument, whenever executed, that became irrevocable on or after January 1, 2001."6 The delayed effective date is to provide a grace period so that grantors have the opportunity to revise their instruments.7
The combination of delayed start plus retroactive application means that, between now and 2010, estate planning attorneys will need to consider both the new law and the current law when they draft no contest clauses. They need to consider the new law because no contest clauses drafted today will be governed by that law when it becomes effective. At the same time, they need to consider current law because no contest clauses drafted today might come into play before the new law takes effect.
B. Retroactivity
The retroactivity of the new law was the subject of some debate. CLRC proposed that the new law be retroactive to all instruments, whenever executed, that became irrevocable after January 1, 2001. As amended in the Senate on April 15, 2008, however, SB 1264 would have been prospective only; it would have applied only to instruments executed after January 1, 2009. Lawyers and judges then would have had to cope with four different sets of rules governing no contest clauses, depending on the effective date of the instrument.8 To avoid this, and because it believed that a uniform rule was fair to all, Texcom favored making the bill fully retroactive. CLRC, however, argued that since the law's substance was similar to the law in effect since 2001, the bill was fairly applied to instruments that became irrevocable after 2001, but retroactive application to pre-2001instruments could have unfair results.9 The Assembly amended SB 1264 to conform to CLRC's original proposal. As passed, the new law applies to any instrument, whenever executed, that became irrevocable after January 1, 2001. It does not apply to an instrument that became irrevocable before that date.10
One consequence of making the applicability of the new law dependent on when the instrument became irrevocable is that a single instrument may be subject to differing rules. For example, if a married couple's trust divided on the first spouse's death (before 2001) into a revocable survivor's trust and an irrevocable bypass trust, the trust's single no contest clause could be governed by both the new and the old law.
Having multiple sets of rules apply to no contest clauses, however, is not entirely new. Since 2001, when the Legislature last significantly changed the rules governing no contest clauses by enacting Section 21305, additional rules have applied to post-2001 instruments.
C. Law Applicable to Irrevocable Pre-2001 Instruments
The new law applies only to instruments that became irrevocable after January 1, 2001.11 At the same time, it repeals the provisions that currently govern instruments that became irrevocable before 2001.12 What law, then, will apply to these clauses?
At first blush, it would appear that the new law provides that the common law, and not the repealed statutes, will govern instruments that became irrevocable before 2001. New Section 21313 provides, "The common law governs enforcement of no contest clauses to the extent this part does not apply," and new Section 21315 provides, "This part does not apply to an instrument that became irrevocable before January 1, 2001." It follows, therefore, that "[t]he common law governs" "an instrument that became irrevocable before January 1, 2001." This would explain why the new law repeals existing statutes—they would no longer govern anything.
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However, it does not appear that this is what the Legislature intended. Although the new law repeals existing Sections 21300 through 21322, the Legislature apparently intended those statutes to continue to govern pre-2001 instruments.
CLRC's "comment" to new Section 21315 states, inter alia, "An instrument that is not governed by this chapter would be governed by the law that applied to the instrument prior to the operation of this chapter. See Section 3(g)."13 Section 3 provides general transitional rules applicable to changes in the Probate Code.14 Subdivision (g) provides that the old law, even if repealed, will continue to govern certain matters not covered by a new law. CLRC's comment makes clear that CLRC expects that the repealed statutes will continue to govern instruments that became irrevocable before 2001. This expectation is also reflected in the body of CLRC's report.15
Explanatory comments by the CLRC are "persuasive" evidence of the Legislature's intent in enacting its recommendations,16 and this "is particularly true where the statute proposed by the commission is adopted by the Legislature without any change whatsoever and where the commission's comment is brief, because in such a situation there is ordinarily strong reason to believe that the legislators' votes were based in large measure upon the explanation of the commission proposing the bill."17 Here, new Section 21315 is identical to that proposed by the CLRC, and the commission's "comment" is brief. Arguably, then, the Legislature also intended that Section 3(g) would apply, and that the repealed statutes would govern instruments that became irrevocable prior to 2001.
An apparent inconsistency exists between new Section 21313, which provides that "[t]he common law governs enforcement of no contest clauses to the extent this part does not apply," and legislative intent, which is that "the law that applied to the instrument prior to the operation of this chapter," i.e., the repealed statutes, governs pre-2001 instruments.
How will the courts resolve this inconsistency? Given the clarity of the legislative intent, perhaps it has the edge. However, although persuasive, CLRC comments are not conclusive, and do not override a clear and unambiguous statute.18 Furthermore, the accuracy of a comment may be questioned.19 It is just not clear that CLRC is right that Section 3(g) would resurrect the repealed statutes. Section 3(g) provides, "If the new law does not apply to a matter that occurred before the operative date, the old law continues to govern the matter notwithstanding its amendment or repeal by the new law." If a proceeding is filed after the operative date of the new law and the question is whether it triggers a no contest clause in an instrument that became irrevocable before 2001, are we dealing with "a matter that occurred before the operative date [of the new law]"? That would seem to depend on whether the "matter" is the potential contest or the no contest clause. Unfortunately, the term "matter" doesn't provide much guidance.
One thing is clear; practitioners should hang on to their code books. Assuming CLRC is correct, existing statutes will continue to govern trusts that became irrevocable before 2001, but, because they are repealed by the new law, they will disappear from the code books come 2010.
Even if most existing statutes will continue to govern pre-2001 trusts, Section 21305 likely will not. Section 21305 identifies three actions that are not contests unless expressly identified in an instrument, and 12 pleadings that are not contests as a matter of public policy. By its terms, however, the section does not apply to instruments of decedents dying before January 1, 2001, or documents that became irrevocable before that date.20
Thus, for instruments that became irrevocable before 2001, practitioners may need to look (in an archive copy of the Probate Code) to repealed Sections 21300 through 21321, except for repealed Section 21305. These "repealed" sections may continue to govern no contest law for the wills of decedents who died before 2001 and for trusts that were irrevocable before 2001.
The author recommends that the Legislature take advantage of the new law's grace period to clarify what law applies to pre-2001 instruments. If the Legislature wants existing statutes to apply to no contest clauses in pre-2001 instruments, the author recommends that the Legislature not repeal existing statutes, but amend them to limit their application to instruments that became irrevocable before 2001.
A. Introduction
The definition of "contest" under existing statutes is open-ended. A contest is "any action identified...
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