Play It Again: No Contest Clauses Must Be Referenced In Each California Trust Amendment

No contest clauses are an ever-evolving area of the probate law in California.  The Court of Appeal further refined the rules governing no contest clauses in a decision issued last week, Aviles v. Swearingen (2017) ___ Cal.App.5th ___.  In brief, in order for a no contest clause to apply to a trust amendment, the no contest clause must be stated in the amendment or the amendment must expressly reference the no contest clause set forth in a prior document.

The takeaway from the case for estate planners is that if your client wants a no contest clause, then you must mention the no contest clause in every trust amendment that you draft for the client.  It is not good enough to simply include a no contest clause in the client’s trust and then refer back to that trust, generally, in later amendments.  Each subsequent amendment must either contain its own no contest clause or must expressly reference the no contest clause of the original trust instrument.

The Story of Peggy Chappell

Peggy Chappell created a living trust in 2010.  Her original trust instrument left everything to Peggy’s boyfriend, Jose Francisco Aviles (“Aviles”).  Before her death in 2016, Peggy would amend her trust three times:

  • In the first amendment, Peggy left Aviles her real property and directed that the remaining trust assets be split with 50% going to her brother and 50% to her nieces and nephews.
  • In the second amendment, Peggy left Aviles her real property, with 50% of the remainder going to her brother and 50% of the remainder going to her godchildren.
  • In the third, and final, amendment, Peggy still left Aviles her real property, but left 100% of the remainder interest to a friend, Tracy Swearingen (“Swearingen”).

The third amendment was signed only after Peggy suffered a relapse of cancer in 2015, and after she had given Swearingen a copy of her estate planning documents for safekeeping.  Peggy complained to others that Swearingen had read her trust documents.  Swearingen confronted Peggy about the terms of the second amendment, and in the months afterwards, Peggy signed the third amendment that favored Swearingen without the advice of an attorney.

After Peggy’s death, Aviles filed a petition to invalidate the third amendment.  Aviles claimed that Swearingen owned and operated a marijuana dispensary and supplied Peggy with marijuana even though Peggy did not have medical approval.  Aviles alleged that Peggy became addicted to marijuana and that Swearingen coerced Peggy into amending her trust to remove her brother and her godchildren in favor of her pot dealer, Swearingen.

In response, Swearingen filed a counter petition alleging that Aviles had violated the no contest clause in asserting his petition.

The third amendment did not contain its own no contest clause.  Instead, the third amendment stated that “[t]hese Articles once included, and along with any Articles not amended, shall result in the Third Amendment and Restatement of the Trust Agreement for the Living Trust of Margaret B. Chappell.”  Swearingen argued that this clause meant that the no contest clause in the second amendment continued in effect as to the third amendment.

The Court’s Ruling

The trial court disagreed with Swearingen’s argument and held that the no contest clause in the second amendment could not flow through to the third amendment.  The court noted that it strictly construes no contest clauses and narrowly examined the definition of “protected instrument” in Probate Code section 21310.

A “protected instrument” – one where it is possible for a beneficiary to trigger a no contest clause with a direct contest – is defined as an “instrument that contains the no contest clause” or an “instrument that is in existence on the date that the instrument containing the no contests clause is executed and is expressly identified in the no contest clause, either individually or as part of an identifiable class of instruments, as being governed by the no contest clause.”  (Prob. Code § 21310(e)(2).)

According to the Court of Appeal, a settlor may create a “protected instrument” either by (a) expressly and specifically incorporating a no contest clause from a prior instrument by reference, or (b) republishing a no contest clause in full in the subsequent amendment.  However, generally referring to the terms of a trust or to a prior amendment that contains a no contest clause is not sufficient to extend a no contest clause to subsequent amendments.

As such, the Court ruled in Aviles’ favor, declared that there was not a no contest clause in the third amendment, and protected Aviles’ gift even though he filed a contest against the third amendment.  You might expect for the matter to move forward with Aviles’ contest on the basis of undue influence, but the parties apparently settled the case on the eve of the Court of Appeal’s decision.

The Other Side of the Coin

No one is perfect, and there is a debate in our office about whether the Court of Appeal reached the right decision in the Aviles case given the definitions in the Probate Code.

Specifically, the definition of the phrase “protected instrument” in Probate Code section 21310(e) relies upon the word “instrument,” which is itself a defined term in Probate Code section 45.  The Court of Appeal did not discuss the fact that the word “instrument” is separately defined.

Instrument is defined in Probate Code section 45 as “a will, trust, deed, or other writing that designates a beneficiary or makes a donative transfer of property.”  But, a trust is a fiduciary relationship, not an entity or a document.  The terms of the trust, as expressed in a writing or orally, govern the  relationship.  And, in other sections of the Probate Code the phrase “terms of the trust” means not only the written trust instrument in effect at the settlor’s death, but also the amendments to the trust.  (See Probate Code section 16060.5.)

When the Legislature used the word “trust” did it mean to separate original trust documents from later amendments?  What if the later amendment does not stand on its own?  What if the later amendment only modifies the identity of the successor trustee and does not make a donative transfer of property?  Is it possible that some trust amendments are “instruments” and some are not?  The Legislature’s definition of the word “trust” at Probate Code section 82 is not illuminating.

If the Legislature’s use of the word “trust” in Probate Code section 45 is meant to include all of the “terms of the trust,” that would include the original trust document and all amendments, and it would not be appropriate to piecemeal the original trust instrument from later amendments as the Court of Appeal has done in Aviles.  It not clear whether this argument was made to the Court of Appeal.

Take Away Notes

The Court of Appeal said that “generic no contest clauses . . . are obsolete” and cited a prior decision for the proposition that estate planning attorneys must carefully draft each no contest clause with particularity for each individual client.  Rather than more individualized drafting, it seems likely that this decision will convince estate planners to homogeneously insert the same generic no contest clause language from Probate Code section 21311 into every trust and into every amendment.

If you are a planner, and your client wants the no contest clause to apply to each and every one of his or her amendments, then the best practice is to republish the complete text of the no contest clause into each amendment.

The only certainty is that the law of no contest clauses will remain uncertain going forward.  This decision is sure to be interpreted and construed by future courts.  In addition, new case law and the Legislature will continue to tweak this issue and other issues related to the enforceability of no contest clauses.

Anti-SLAPP Case Features Arm Wrestling Siblings and a Prep School

California’s anti-SLAPP statute has generated another published case for trust and estate lawyers to ponder.  Last week, in Urick v. Urick (2017) ___ Cal.App.5th ___, the California Court of Appeal confirmed that anti-SLAPP motions can be used to attack petitions to enforce no contest clauses.

The opinion reminds California trust and estate counsel to be cautious when using petitions to attack the court filings of other parties.  At the same time, the opinion demonstrates that a well-conceived attack on an adversary’s filing ultimately should not fall to an anti-SLAPP motion, even if it takes an appellate court to set things right.

SLAPP is an acronym for “Strategic Lawsuits Against Public Participation.”  To discourage and weed out such suits, the Legislature created a special procedure to challenge them.  Last year we wrote about the use of anti-SLAPP motions as a defensive tool in trust and estate litigation.   We discussed the use of such motions to challenge efforts to enforce no contest clauses, using an unpublished appellate case as an example.  With Urick, we now have published authority in California for guidance. Continue Reading

When Is a Will Valid in California?

Although much wealth passes today through trusts and beneficiary designations, we occasionally handle California probate disputes that turn on the validity of wills, sometimes involving high value estates.

The standard practice in California estate planning is for wills to be typewritten and prepared by attorneys, but those steps are not necessary.  A holographic, i.e., handwritten, will can have just the same effect. Continue Reading

Look! Up in the Sky! It’s Sibling Lawyer!

I’m a sibling lawyer.  My career started early, as a middle child, and now continues as a Sacramento-based trust and estate litigation attorney.  Most of my clients are grappling with sisters or brothers over the care and finances of aging or deceased parents.  In Family Feud parlance, my “survey says” that sibling versus sibling is the top category of matchups in California trust and estate disputes.

Will this happen in your family?  What leads siblings to litigate?  In many of my cases, cracks in family relationships were evident long before anyone filed papers at the courthouse.  But I’ve had many clients tell me they were always close to their siblings and “never saw it coming.” Continue Reading

Take It or Leave It: The Perilous Decision of Whether to Violate a No Contest Clause

One of the most dramatic areas of California trust and estate litigation is no contest clauses.  No contest clauses bring a made-for-tv excitement to the practice of trust and estate law because of the risk of disinheritance.  Yet such clauses are widely misunderstood, even among attorneys. Continue Reading

California Professional Fiduciaries Help Elders and Resolve Conflicts

California trust and estate disputes may be avoided or resolved with the appointment of a private professional fiduciary to act in an oversight role with respect to an elder’s care and/or finances.  In a recent post, we suggested the use of professional fiduciaries or bank trust departments to resolve conflicts among family member co-trustees.

Here we’ll focus on professional fiduciaries as an option, drawing on our experience as trust and estate litigation attorneys.  We usually represent family members in conflicts.  Sometimes we represent professional fiduciaries. Continue Reading

Look for Mild Cognitive Impairment in California Trust and Estate Disputes

Mental incapacity and undue influence are the most common theories used to try to invalidate wills, trusts and beneficiary designations in California and elsewhere.  Occasionally, the subject in a trust and estate dispute has a thorough cognitive evaluation performed contemporaneously with his or her estate planning change.  But, more often than not, the medical record is fragmentary.

In a prior post, we discussed the recurring issues that come up in cases involving Alzheimer’s disease.   Dr. Charles Schaffer, a Sacramento forensic psychiatrist, recently sent me an article entitled “Protecting the Health and Finances of the Elderly with Early Cognitive Impairment,” published this year in the Journal of the American Academy of Psychiatry and the Law.  The article focuses on mild cognitive impairment and early Alzheimer’s disease.  The relatively subtle nature of these two medical conditions makes their impact on estate planning decisions hard to fathom. Continue Reading

Co-Trustee Conflict Fuels California Trust Litigation

Hands TiedCalifornia trust litigation often stems from disagreements and hostility among family member co-trustees.  Rather than picking one of their kids to serve as sole successor trustee when they die or become incapacitated, Mom and Dad often appoint two or more of their children to act together as successor co-trustees.

Having more than one child serve as co-trustee can work out well or turn into a nightmare.  In this post we’ll discuss the challenges associated with sibling co-trustees and how controversy might be avoided. Continue Reading

Courts Should Read Elder Abuse Act Broadly to Stop Wrongdoers

Stop SignCalifornia’s Elder Abuse and Dependent Adult Civil Protection Act is elastic enough to encompass claims arising from sharp insurance sales practices, even when elders do not pay anything directly to the agents.  So concluded the First District Court of Appeal earlier this month in Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 12 Cal.App.5th 442.

The Mahan opinion provides a helpful historical overview of the Elder Abuse Act in addition to affirming the long reach of the protective statute.  As elder abuse claims become increasingly common in California trust and estate litigation, this will be an often-cited case. Continue Reading

Constructive Trusts Can Catch Wayward Trust Assets

Businessman running with butterfly net chasing money which is flying in the air. Finance business concept.

Trustees in California trust disputes should not overlook the power of the constructive trust remedy as a way to recover errant trust assets.  That’s a takeaway from Higgins v. Higgins (2017) 11 Cal.App.5th 648, an opinion in a trust litigation case published last week by the California Court of Appeal.

A Los Angeles Superior Court trial judge found a “clear moral obligation” on the part of Lupe Higgins to return several hundred thousand dollars to the Higgins Family Trust, but could not find a legal obligation, so the judge apologized to the Higgins family for being powerless to restore the funds.  The appellate court did not like the sound of that music and came to the rescue, ruling that the trial court had discretion to compel Lupe to transfer the money to the trustee of the Trust. Continue Reading